A Unit Linked Insurance Plan (ULIP) offers a dual benefit of insurance & investments, where a part of the premium is allocated towards life insurance & the remaining part is invested in market-linked securities. In case of a sudden demise of the policyholder, the beneficiaries will receive the death benefit or the fund value, whichever is higher. In case the policyholder survives the policy, the policyholder will receive the fund value that would have been accumulated, depending on the fund’s performance. If an investor seeks aggressive growth, they can invest their money in equity funds, or rather opt for stable returns by investing their money in debt funds.
Let us see how ULIP funds work:
- A policyholder firstly selects a plan depending on their financial objectives, risk appetite & investment horizon.
- They are required to make payment towards the premium amount depending on the policy tenure & the premium payment frequency chosen.
- Once the premium is paid, the policy becomes active, & the life is assured with the chosen policy tenure.
- In the unfortunate event of the policyholder’s demise, the death benefit can be claimed by their beneficiaries, subject to certain terms & conditions.
- If the policyholder survives the plan, the maturity benefits would be received by the policyholder themselves, which are in the form of market-linked securities.
- The policyholder can select the mode of investment in terms of which funds they desire their money to be invested depending on the available options.
- The policyholder & the life assured could be for the same person or for someone else, such as a spouse, if the plan allows for the same.
How to Buy ULIPs Online?
Provided are the steps to purchase the ULIP plans online:
Step 1: Compare the plans available with different insurance companies on the basis of charges, lock-in period, flexibility provided, fund options, etc.
Step 2: Choose a plan that best suits your financial goals, risk appetite, & investment horizon.
Step 3: Use an online ULIP Calculator available to calculate the amount of premium depending on the policy tenure & investment amount.
Step 4: Input the financial & personal information that is required to be filled in the application form.
Step 5: Next, select the types of funds you desire your amount to be invested in.
Step 6: Review the details entered & proceed with making the payment towards the premium amount with the help of the payment options available.
Step 7: Submit the relevant documents required by uploading them, such as identity proof, address proof, etc.
Step 8: Review all the details entered for correctness, & then submit your application for processing.
Step 9: Once the application gets approved, you will be issued the plan, & a further policy document will be sent through email or post.
Types of ULIP Funds
Let us now discuss the different funds under ULIP:
- Equity Funds
These funds invest the money into market securities, equities, etc., which are closely linked to the market. Though these funds come with high risk, but offer higher returns as well as they are linked to the market. These funds best suit those who want their funds to grow & are unaffected by the market’s dynamic nature.
- Debt Funds
These funds invest money into fixed income securities, government bonds, & low-risk instruments. Though these funds come with low risk, but offer stable but moderate returns as they are not linked to the market.
- Balanced Funds
These funds offer the dual benefit of both equity & debt funds. As the name suggests, they offer the best of both the funds, i.e. medium risk with moderate returns. These funds best suit those investors who need sustainable growth with a combined benefit of safety & scope for higher returns.
How to Choose the Right ULIP Funds in India?
Let us assess the criteria to choose an appropriate ULIP fund depending on the type of investor:
- Risk-Taking Investor
An investor having a high risk appetite, i.e. who is willing to take risks, must invest in equity funds. These funds offer high returns but come with high risk as well.
- Risk Averse Investor
A risk-averse investor is not willing to accept risk, must invest in debt funds, like government securities, corporate bonds, etc. These funds come with low risk & offer moderate returns.
- Moderate Risk Investor
If you are an average risk-taking individual who is willing to take risks but not that much, opt for balanced funds.
Reasons to Invest in ULIPs
Provided are the reasons to invest in ULIPs:
- Market-Linked Growth:
They offer higher returns & allow funds to be invested in debt & equities, by well aligning risk tolerance level & financial objectives.
- Life Insurance Cover:
It offers life insurance coverage to the family members, providing them with financial security.
- Flexible Investment Options:
It allows you to invest in debt, equity, or balanced funds as per your requirements.
- Wealth Accumulation:
It is a long-term savings plan that lets you build your wealth over a period of time.
- Automatic Fund Management:
It allows the portfolio to be adjusted depending on the market performance & risk appetite.
- Partial Withdrawal Options:
It allows for the withdrawal of funds partially once the lock-in period of 5 years is met.
- Tax Benefits:
The premium paid is eligible for tax deduction u/s 80C of the Income Tax Act, 1961. Also, the maturity benefits are exempt from tax u/s 10(10D).
- Fund Switching:
It allows switching between the funds depending on the market scenario.
- Loan Availability:
It allows raising of loans when required, hence providing liquidity.
- Settlement Options:
It allows to select the mode of settlement, i.e. lump sum or in instalments.
- Rider Add-Ons:
It allows you to enhance the coverage of your plan at some added cost.
- Legacy Planning:
It allows creating a legacy plan by transferring the wealth towards the future generations.
Conclusion
ULIP is a comprehensive financial tool providing dual investment & insurance coverage benefits. Due to its transparency, flexibility, &tax benefits, one can achieve their long-term goals & secure the family’s financial future. The returns on unit-linked insurance plans are market-linked, which means they offer higher returns than traditional plans.