A Unit Linked
Insurance Plan (ULIP) is a life insurance plan, which offers the dual
benefits of protection as well as savings. The protection component is
the insurance cover while the savings component is that portion of the
premium that is invested by the insurance company on your behalf in a
fund(s) of your choice. The first one is called Death Benefit and the
second one, Maturity Benefit.
ULIPs
help you fulfill your long term financial goals. They cultivate a
disciplined approach to financial planning as it requires you to make
investments at regular intervals. Being long term plans, they also
protect your investment from short term market fluctuations due to rupee
cost averaging.
ULIPs have the
added advantage of flexibility and transparency. Investment portfolios
are disclosed on a monthly basis and Fund's NAVs [1]
are disclosed on a daily basis. Most ULIPs offer you a range of fund
options across different asset classes to meet your needs based on your
individual requirements. They also provide you the flexibility to manage
your investment based on the changing market scenario and your risk
appetite.
Investment in ULIPs is
also eligible for tax deduction of Rs. 1,00,000 under Section 80(C) of
Income Tax Act as per current tax laws.Benefits
A ULIP is essentially a long term financial planning tool and offers you numerous benefits such as -
- An insurance cover that is available from the start of the investing period.
- Lower fund management charges that result in better returns over the long term.
- Flexibility in asset allocation that allows you to maximize returns through various financial cycles and also provides you the option to adjust the product based on your changing risk profile.
- Installs a discipline of investing that ensures you are able to meet your long term goals.
- Provides the option of further enhancing the product through riders such as the Term Rider, Waiver of Premium Rider etc., besides offering value additions such as loans, portability etc.
How does a ULIP works for you?
Before buying a ULIP, it is important for you to understand how it works.
A ULIP has basically two components – a protection component and a
savings component. Based on the amount you want to invest and the life
cover you choose, we deduct a certain portion of your premium. This is
known as the Premium Allocation Charge and varies from product to
product. The rest of your premium is invested in the funds you choose across different asset classes.
Mortality Charges and Policy Administration Charges are deducted on a
periodic basis by cancellation of units, whereas your Fund Management
Charges are adjusted from the NAV [1]
on a daily basis.
An important feature of your ULIP is that it allows you to control your
investment. You can decide the amount to be invested across different
asset classes and may switch between funds or re-direct your future
premiums in different funds based on the changes in your risk profile
and market conditions.
You may
please note however, the returns in ULIPs are market linked and are not
guaranteed. You may spend some time with your financial advisor to
understand your appetite for risk and choose a fund that is suitable to
your profile. Please ask for the benefit illustration that indicates
estimated returns, understand the assumptions and seek clarifications if
you need to know more. Depending on the market conditions and changes
in your risk profile, you may shift from one fund to other to optimize
returns.