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Unit Linked Insurance Plan (ULIP)

What is a ULIP?

A Unit Linked Insurance Plan (ULIP) is a life insurance product that offers the investment option along with a life cover. In ULIPs, your premium amount is allocated for both the investment element and the life cover. With investment options in ULIPs, you get the chance to grow your savings by investing in one of the fund options provided by the insurer and value of your investment also differs with the performance of your chosen fund. You can also choose an appropriate life cover as per the specific needs and choices. It is a market linked product and the risks associated with the investment are to be borne by the policyholder. Choose from a variety of unit linked insurance plans to suit your goals.

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Why should I buy ULIP?

Following are the top reasons to buy a unit linked insurance plan.

Investment Growth

In the present age of uncertainty, everyone likes to grow their money that can help them get through the tough financial times or lead a good life. Buying a ULIP plan ensures you higher returns depending on the performance of the fund, you have invested in.

Meet Financial Obligations

Fulfilling financial obligations at different stages of your life is quite imperative. A ULIP plan helps you to easily achieve the goal-based savings and help you fulfill major financial obligations planned at different life stages.

Ensures Financial Protection

Life is unpredictable and uncertain, and thus you need to ensure the financial protection for your family when you are not there. A ULIP plan offers life cover and pays a sum assured amount to the family/nominee in case of the demise of the life insured during the policy period.

For Higher Returns

As you are provided with several fund choices, you can choose a high performing fund to invest your money, and you get the chance to achieve higher returns. You only need to choose a fund option as per your risk appetite and see your money grow.

Get Peace of Mind

In today’s scenario of hectic life, everyone wants to ensure the family’s happiness always. A ULIP Plan provides life cover plus investment option to grow your wealth. It carries the dual benefits and thus assures peace of mind.

What kinds of ULIP can I opt from?

Wealth Creation ULIPs

If you are looking to buy a plan that helps you build the wealth along with the insurance benefit, investing with a wealth creation plan is the best bet. This kind of unit linked plan helps fulfill your long-term financial goals with the life cover. Choose a wealth creation ULIP plan and obtain huge returns on your invested amount as per your risk appetite.

Child ULIPs

This type of unit linked plan aims to cater the financial needs for your child’s future, and it helps to manage expenses such as a child’s education, higher education, and marriage. By investing in this plan, your child can easily realize his dreams, even when you are not there.

Health ULIPs

This type of unit linked plan takes care of your health related expenses. In this plan, your premium amount is invested in a fund and thus provides the fund value and insure your health as well. It provides the dual benefits of health protection plus savings.

Retirement ULIPs

Everyone wants to save a huge corpus for their post-retirement period. Here is the market linked investment plan for retirement that helps you build a sum of money that you can withdraw as a lump sum and the remaining amount is used to purchase the annuities that you will receive for the rest of your life. These plans have different annuity options that you may opt for, as per your financial needs.

What are the Benefits of Buying a ULIP Plan?

Following are the key benefits of buying a ULIP Plan.

Dual Benefits

By investing in a unit linked plan, insurers offer you the dual benefits of investment option with the life cover. It offers a death benefit in the form of the sum assured if the insured dies during the policy term and offers maturity benefit in the form of fund value if the insured survives the policy term. The fund value may differ depending on the performance of the fund.

Multiple Investment Fund Options

By investing in a unit linked plan, you have the option to choose from the high risk, medium, or low risk fund options according to your risk appetite.You may also switch the funds during the policy term.

Partial Withdrawals

ULIP policies provide flexibility to enjoy the facility of partial withdrawals after lock-in period of 5 years. You can withdraw a partial amount of the accumulated fund value that helps you tackle unexpected financial emergencies with ease.

Offers Flexibility

Unit linked plan offers Fund Switching as per your financial goals and fund performance. The unit linked plan also offers Premium Redirection benefits. At the time of policy issuance, you need to declare the allocation of your funds and future premiums are allocated accordingly to the desired funds.

Benefit of Top Up

Apart from the regular premium amount, you have the option to invest an additional amount depending on the feature available with your unit linked product. It is a ‘TOP UP’ facility under which the additional amount is invested as per the fund option chosen and the entire amount is utilized for the investment purpose to increase the corpus (in terms of fund value) in the funds opted by you in the plan.

Surrender Benefit

In case of urgent financial emergencies or liquidity crunch, you may opt to surrender the policy and get quick access to the accumulated cash surrender value.

Tax Benefit

You can avail tax benefits under section 80 C for the premium paid towards running the ULIP policy. The payouts of the insurance policy are tax free under section 10 (10) D of the Income Tax Act, 1961.

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How is my ULIP Premium Calculated?

Following are the key factors that help determine the premium amount for the ULIP plan.

Age

The age plays an important role in determining the premium amount charged towards the life cover for your unit linked insurance policy. If you buy the plan at an early age say at age 25, you need to pay the lower premium amount than the one buying at an advanced age say at age 40.The mortality cost is less for a 25 year old person as compared to a 40 year old.

Smoking/Drinking Habit

If you consume alcohol, tobacco, and other nicotine products, your life is put at higher risk. Intake of these products is quite detrimental to health, and insurers tend to charge higher premiums to cover the increased life risk.

Present Health Condition

Your health condition also determines the premium to be paid by you for buying the life cover. If you suffer from any severe illnesses such as cancer, diabetes, or heart attack, you will be charged with the higher premiums in a ULIP Plan.

Gender

According to the recent statistics, men have lower life expectancy than women and thus have higher life risk. In order to provide the male policyholder a life cover, you need to pay the higher premium amount in a ULIP Plan.

Nature of Profession

The nature of your profession also affects the premium amount you pay towards the life cover in the policy. In case you are working in a high risk industry such as mining industry, Oil & gas, and fisheries, you are charged with the higher premiums.

What Types of Fund Options can I Choose From?

Insurers offer a variety of fund options to suit the risk profile and investment objectives of each investor. Following are the common types of fund options you can choose from.

Equity Funds

Under this fund option, your money is primarily invested in the stock market and the performance of the fund works with the volatility of the market. Investment in this fund offers high returns, but carries high risk as well.

Debt Funds

Under this fund option, your money is invested in the debts, government bonds and security and fixed interest instruments. Investment in this fund offers a low to medium return and carries the medium risk.

Balanced/Hybrid Funds

Under this fund option, your money is invested in the equity market and debt fund. Investment in this fund offers moderate returns with the medium risk involved.

What are the Types of Charges in a ULIP?

Different insurers levy different charge structure when buying a ULIP. All the below mentioned charges are deducted from the premium amount for the policy and the remaining amount is then used for purchasing units in a ULIP. Following are the most important charges, you should be aware of.

Policy Administration Charges

These charges are deducted towards the cost incurred in servicing and maintaining the policy. These charges are deducted on a monthly basis and could be fixed for the entire policy period or may differ at a pre-specified rate.

Premium Allocation Charges

These charges are deducted from the premium payment before allocating units under the ULIP. It includes initial expenses incurred by the insurer in issuing the policy, such as underwriting cost, medical expenses, and distributor’s fees.

Fund Management Charges

These charges are levied on account of management of the fund(s). Fund management charges may vary for different funds. A fund with a higher equity element will be levied with a higher fund management charge.

Mortality Charges

These charges are levied by the insurer for providing the life cover to the policyholder. The mortality charges differ on the basis of numerous factors such as age, sum assured, prevailing health condition, etc. These charges are deducted on a monthly basis.

Surrender Charges

These charges are levied for either the premature partial or full encashment of units, as applicable in the policy terms. These charges are deducted as a percentage of the premium or the fund value.

Fund Switching Charge

You are provided with a limited number of fund switches in a year for free and upon exceeding that limit, Insurers charge a fee for switching between the fund options. Fund switching charges are levied on account of costs incurred in switching your funds.

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What are some Smart Buyings Tips?

Following are the key tips you may refer before buying a ULIP.

Assess Financial Goals

Prior to investing in a ULIP plan, it is important to assess your financial goals and then invest so that you can receive a huge amount on the maturity of the policy. You also need to plan your investment in a manner so that your policy matures and you can easily meet the financial obligations such as children’s education, marriage, etc.

Choose the Right Life Cover

A ULIP plan also covers the life risk that ensures financial protection for your family in case of your premature death during the policy period. While choosing the life cover, you also need to assess your financial obligations such as children’s education, marriage, or other day to day expenses of your family, so that the cover amount your family will receive can easily help them maintain the similar lifestyle.

Invest Early

Buying a ULIP plan early in your life helps you build a big fund value that you will receive at the maturity of the policy. Investing in the plan in the younger age also helps you get, the higher life cover at the low premium amount. Ulip’s are not an ideal plan for you if you are planning to buy it post touching 50 as high mortality charges will exhaust all the investment value.

Choose a Fund as per your Risk Appetite

There are a variety of funds to invest in as per the risk portfolio in a unit linked plan. It is important to choose the fund as per your risk taking capacity. In case you are well versed with market related investments and high risk taking appetite, then you may invest in equity based fund. But if you want a stable return, you may opt for a debt related fund or a balanced fund.

Invest for the Long Term

There are several charges involved when you invest in a unit linked plan and in order to get the best returns from the policy, it is recommended to invest for a long term (atleast for a minimum term of 10 years) which will help grow the fund value adequately.

Compare Plans Online

Before buying a ULIP plan, it is recommended to compare the plans from different insurers and choose the one as per your and your family needs. You can also get the discounts on premium amount when buying a ULIP online.

Choose Riders/Add-on Covers Wisely

Riders increase protection for your ULIP plan and all these are available at an additional cost. It would be a prudent decision to assess the benefits available with the riders and then attach the riders that suit to your needs.

Read the Fine Print

It is recommended to read all about the policy terms & conditions, its benefits & exclusions. Read through the policy wordings which helps you assess whether the policy is a right fit for your needs or not.

Is there any Add on Cover/Rider with ULIP Plan?

Riders are add-on covers that provide additional enhanced protection. These riders are available at an extra cost and it’s recommended to assess the rider benefits before buying.

Following are the rider options to attach to your unit linked plan.

Critical Illness Rider

This optional rider covers the medical costs incurred due to severe illnesses such as a Heart attack, Cancer, Major organ transplant,etc. which may disable an individual that results in loss of earnings. Typically, the covered provided under this rider is the sum assured and paid additional to the sum assured in the base policy. The benefit under this rider is paid upon diagnosis of the illness.

Disability Rider

This rider provides monthly income to the life insured in case of permanent or temporary total or partial disability arising due to an accident or illness. The payout differs and it depends on the kind of disability occurred.

Accidental Death Benefit Rider

This rider provides extra financial benefits to the nominee in case of death of the insured arising from an accident. The insurer pays the accidental death sum assured to the nominee, which is over & above the base sum assured of the policy.

Term Rider

This rider provides the death benefit to the nominee, which is additional to the base policy sum assured in the event of death of the life insured.

Waiver of Premium Rider

This rider waives off all the future premiums in the event of death or disability of the life insured. The policy continues till its maturity. It enables the policyholder to enjoy benefits of the insurance policy, even when they cannot work.

Income Benefit Rider

This rider provides the nominee/family of the life insured with the monthly income apart from the lump sum payout they get on the death of the insured. The payout and other benefits are subject to the terms mentioned specified the rider benefits.

Guaranteed Insurability Rider

This rider provides the policyholder an option to buy an additional coverage without any medical examination or any evidence about insurability. This rider is best for those who like to increase the cover at a later date on account of increased income and liability in the future.

What is NOT included in the ULIP Plan?

Your ULIP plan has the following exclusions.

If the event of death of the life insured, whether sane or insane commits suicide within 12 months from the date of commencement of the policy or the revival of the policy, the nominee of the policyholder is entitled to receive the fund value as available on the date of death. No charges are levied after the date of death and if any charges levied under such scenario, it will be paid back to the nominee/beneficiary.