Wondering , what is ULIP and its benefits?

As the name suggests, ULIP ( Unit Linked Insurance Plan) is an insurance plan that offers the dual benefit of investment as well as life insurance coverage to financially protect your family in case of an unfortunate event . Investing in ULIP plans offers a wide range of benefits and has a numerous pros that one should know. Various pros of investing in ULIP are discussed below :-

Market Linked Returns:
ULIP means an opportunity to earn market-linked returns by allocating a portion of the premium invested into market-linked instruments such as debt and equity instruments (in varying proportions).

Life Protection with Savings:
Besides allocating a portion of the premium invested into market-linked instruments, Unit linked Insurance Plans (ULIP) also help protect you and your loved ones against any emergencies in life.

Flexibility:
ULIP or Unit Linked Insurance Plans (ULIP) help you achieve your financial objectives by providing flexibility to :-
Switch between investment funds based on your changing needs.
Make partial withdrawals after the completion of the initial 5-year lock-in period.

Even Distribution of Charges:
According to IRDAI, the charges levied on ULIP plans are evenly distributed during the 5-year lock-in period. Make sure you understand what is ULIP plan charges that you will be paying, before investing your money.

Level Paying Premiums:
Under a ULIP plan, all regular premium or limited-term premium payments shall have a uniform or level premium payment structure. Any additional payments of premium are treated as a single premium, to provide life insurance cover.

Tax Benefits:
The premium paid towards the ULIP plans is eligible for tax deduction under Section 80C of income tax 1961, up to a maximum of Rs. 1.5 lakh. At the same time, the maturity/death benefit received under the ULIP plan is tax-exempt under Section 10(10D) of the Income Tax Act 1961.

How to Choose the Best ULIP Plan?
Once you understand what is ULIP plan, the next step is to choose the best-suited policy for you since there is a variety of options available. So, before you invest in a ULIP plan, you must consider comparing and evaluating to choose the best ULIP plan available in India. Following are some of the key points to keep in mind while choosing the best ULIP plan:
Evaluate Your Goals.

Choose the Right Life Insurance Cover Amount.

Stay Invested for an Extended Investment Tenure.

Avail Maximum Tax Benefits u/s 80C & 10 (10D).

Let’s know the eligibility criteria for ULIP :

Should meet the criteria for entry age (depends on the insurer and policy type ).

Should be below the maximum entry age (depends on the insurer and policy type).

Should be able to make the premium payments as per the policy selected.

Types of Unit linked insurance plans :

“UNIT LINKED INSURANCE PLANS”can be classified into various types depending upon the parameter that is being taken as the basis.
Based on the type of fund a ULIP invests in ,ULIPS can be divided into the following three types : –

Equity funds : These are ULIP schemes that use the premium you pay to invest it partly in equity funds.

Balanced funds : As the name itself signifies , this is a ULIP that strives to strike a balance between debt funds and stock market to minimize risk for customers and enhance returns.

Debt funds : This type of ULIP invests customer’s money in debt instruments such as bonds, where the risk is lower but the subsequent returns are low too.

Let’s point out the difference why ULIP plans are better than Mutual funds :

ULIPs offer both investments as well as insurance coverage where as Mutual funds only offer good investment opportunities.

ULIPs are generally long term plans that benefits you for long term where as
Mutual Funds are only short and Medium term investment opportunities.

ULIPs offer tax benefits (under section 80C ) where as only tax-saving investments in mutual funds offer some sort of tax benefits.

Written by
Udip Rauniyar ( Articled Assistant )
Articled Clerk