A Comprehensive Guide On ULIP
The full form of ULIP is Unit Linked Insurance Plan. ULIP covers two deals: life insurance protection and potential market-linked investment returns. The company pays part of your premium for life cover while the rest gets invested in funds you choose, offering a chance to grow your wealth. But remember, market ups and downs affect your returns, so buckle up for the ride!
What are ULIPs?
Combined with the advantages of life insurance and investment,this policy can offer multiple benefits. It’s a type of life insurance policy that can offer you the advantages of life insurance and investment. Your loved ones will receive money (death benefit) to help them financially. A portion of your premium is invested in various funds (similar to mutual funds), which have the potential to grow your money over time.
Here’s how a ULIP works:
- Premium Payment: A monthly or lump sum payment.
- Premium allocation: The company invests a part of your premium in life insurance and invests the rest in your chosen funds.
- Fund performance: The returns on your investment depend on fund investments
- Risks & Returns: There is potential for higher returns; however, it also comes with higher risks, while debt funds are generally less risky but offer lower potential returns.
- Maturity: At the end of the policy term, you receive the sum assured (death benefit) and the accumulated value of your units. You can also withdraw your money partially during the policy term under certain conditions.
Major Advantages of ULIP Insurance -
- Dual Protection and Investment
If you need a unique combination insurance that will also carry advantages of both insurance, then go for ULIP. Your loved ones receive a death benefit, while the invested portion potentially grows over time, aiming to achieve your financial goals.
- Investment Flexibility
Most ULIPs offer a range of fund options catering to different risk appetites. You can choose equity funds for potentially higher returns, debt funds for stability, or balanced funds for a mix of both. Some plans even allow fund switching within the policy to adapt to changing market conditions or your evolving risk tolerance.
- Goal-Based Savings
ULIPs can be particularly beneficial for achieving specific financial goals or wealth creation. You can customize your premiums, investment strategy, and policy term to align with your aspirations.
- Partial Liquidity
While ULIPs have lock-in periods (typically five years), many plans offer provisions for partial withdrawals after this period, providing some access to your invested funds when needed.
Tax Benefits: Premiums paid towards ULIPs qualify for tax deductions. Additionally, the policy’s maturity benefits and investment returns are generally exempt from taxes.
Key Features Of A ULIP Insurance Policy
Here are the key features of ULIP Insurance-
- Market-linked returns:
Equities, debt, or hybrid options are some areas where the company will invest a premium portion The returns are based on fund performance.
- Fund choices
It allows you to choose based on your risk appetite and investment goals by offering a variety of funds with different risk profiles.
You can even switch between funds within the plan to adapt to changing market conditions.
- Flexibility
ULIPs often allow for flexible premium payments, allowing you to increase or decrease contributions based on your financial situation.
- Life cover
ULIPs provide a life insurance benefit that pays out a lump sum to your beneficiaries in case of your death during the policy term. This offers financial security to your loved ones.
- Sum assured
You can choose the desired sum based on your needs and financial responsibilities.
- Riders
Additional benefits like critical illness rider, accidental death benefit, and disability income rider can be attached to the ULIP for enhanced protection.
Tax benefits:
- Tax deduction: Premiums paid towards ULIPs are eligible for tax deduction.
- Tax-free maturity: The maturity benefit received from ULIPs is generally tax-free under Section 10(10D) of Income Tax Act, 1961.
- Tax-free switching: Switching between funds within the ULIP is typically tax-free, unlike mutual funds.
Other features:
- Policy term: Choose a term that matches your goals.
- Policy surrender: You may be able to surrender your ULIP partially or fully after a certain lock-in period, subject to charges.
- Transparency: ULIPs offer detailed fund performance reports and account statements to track your investments.
How do you claim your insurance?
In case of death:
- Inform the insurer: Immediately notify the insurance company about the policyholder’s death
- Submit the claim form: Obtain the claim form from the insurer and fill it out completely and accurately. Include details like the policyholder’s name, date of death, and cause of death (if known).
- Gather necessary documents: Attach required documents like the original policy document, death certificate, proof of claimant’s identity, and succession certificate (if applicable).
- Submit the claim: Submit the claim form and documents to the insurance company. You can do this online, by mail, or at a branch office
In case of maturity:
- Contact the insurer: Contact the insurance company about your intention to claim the maturity benefit.
- Submit documents: Provide the insurer with the required documents, including the policy document, proof of identity, and a maturity claim form.
- Claim settlement: The insurance company will process your claim and pay out the maturity benefit, which includes the sum assured and the accumulated fund value
Documents Needed To Obtain A ULIP Insurance Policy
- Identity proof: Passport, PAN card, driver’s license, Aadhaar card (anyone)
- Address proof: Utility bills, bank statements, ration card (anyone)
- Income proof: Salary slips, Income Tax Returns (ITR), bank statements (for self-employed individuals)
- Proposal form: Duly filled and signed
- Medical reports May be required depending on your age, sum assured, and medical history
For Making A Claim:
- Claimant Statement Form: Provided by the insurance company
- Death Certificate (Self-Attested Copy): In case of a death claim
- KYC document of the beneficiary (Self Attested Copy): Photo ID and address proof
- Bank details of the beneficiary: For claim payout
- Additional documents for claims within three years:
- Original Policy Document
- Medical Attendant’s Certificate (if any)
- Self-attested copies of Hospital or Treatment Records (if any)
- Employer’s Certificate (if applicable)
Types Of Ulip Insurance Policies In India
- Based on Investment Strategy:
- Equity Funds
With these funds, you can invest primarily in stocks, offering high potential returns but carrying more elevated risk. Suitable for individuals with a long-term horizon and strong risk appetite
- Debt Funds
It is focused on fixed-income instruments like bonds, providing stable returns with lower risk. Ideal for risk-averse individuals seeking capital protection.
- Balanced Funds
These funds blend equity and debt, offering moderate risk and returns. Cater to individuals seeking a balance between growth and stability.
- Guaranteed Funds
These provide a guaranteed sum assured on maturity but with lower potential returns. Opt for this if guaranteed protection is your top priority.
- Thematic Funds
Thematic funds allow you to invest in specific sectors like infrastructure, technology, or healthcare, offering concentrated exposure and higher risk. Choose this if you have strong
convictions in a particular industry.
2. Based on Premium Payment:
- Single Premium ULIPs
This type of insurance requires a one-time lump sum payment, suitable for individuals with a large corpus available.
- Regular Premium ULIPs
This policy allows smaller, periodic payments throughout the policy term, more manageable for most individuals.
3. Based on Life Stage:
- Lifestage ULIPs:
It automatically adjusts your investment mix based on your age, gradually shifting from equity to debt as you near maturity. It is Ideal for individuals who want a hands-off approach.
- Non-Lifestage ULIPs:
This type of ULIP offers more flexibility in choosing fund allocation but requires active management.
4. Based on Death Benefit:
- Type 1 ULIPs:
This type of policy offers a fixed sum assured regardless of fund performance, providing guaranteed protection, but often with higher charges.
- Type 2 ULIPs
Type 2 offers sum assured linked to fund performance, potentially yielding higher returns but with less guaranteed protection.
Types Of Ulip Insurance Policies In India
- Sum assured paid to the nominee upon the policyholder’s death during the term.
- Natural Death due to earthquakes, floods, etc.
- The additional sum for accidental death.
- Premiums grow in chosen fund units (equity, debt, etc.).
- Accumulated fund value paid at policy end.
- Access part of funds during the policy term.
- Premiums are eligible for tax deductions under specific sections.
- Optional benefits like critical illness and disability income.
- Some insurers offer bonuses.
Inclusions Under ULIP Insurance
- Sum assured paid to the nominee upon the policyholder’s death during the term.
- Natural Death due to earthquakes, floods, etc.
- The additional sum for accidental death.
- Premiums grow in chosen fund units (equity, debt, etc.).
- Accumulated fund value paid at policy end.
- Access part of funds during the policy term.
- Premiums are eligible for tax deductions under specific sections.
- Optional benefits like critical illness and disability income.
- Some insurers offer bonuses.
Exclusions Under ULIP insurance
- Suicide within the first policy year (death benefit not paid).
- Pre-existing medical conditions not disclosed.
- Engaging in illegal activities at the time of death.
- Participating in hazardous activities not covered by the plan.
- Death due to war, terrorism, or civil unrest (exceptions might exist).
- Self-inflicted injuries or intentional harm.
- Death due to HIV/AIDS or other sexually transmitted diseases.
- Drug or alcohol intoxication contributes to death.
- Unnatural deaths not covered by specific riders (e.g., aviation accidents).
- Claim exceeding policy limits (applicable to particular benefits).
- Lapsed policy due to unpaid premiums (no death benefit).
- Maturity claim before the minimum policy term.
- Free look surrender charges within the cooling-off period.
- Fund switching charges exceeding allowed limits.
Who Needs ULIP Insurance?
- Those with long-term financial goals
ULIPs combine life insurance with the potential for wealth growth through market-linked investments. If you have long-term goals like retirement planning, child education, or buying a house, ULIPs can help achieve them while providing life cover.
- Investors comfortable with market fluctuations
Unlike traditional life insurance, ULIP returns are linked to the stock market, which can be volatile. If you have a moderate to high-risk appetite and a long investment horizon, you can earn better returns than traditional plans.
- People who want control over their investments:
ULIPs offer various investment fund options with varying risk-return profiles. You can choose between funds based on your risk tolerance and goals.
How Do You Find a Good ULIP Insurance Policy?
- Understand Your Needs
Before diving into specifics, introspect on your financial goals and risk tolerance. Are you primarily seeking life cover, or is wealth creation paramount? Are you comfortable with market fluctuations, or do you prefer stability?
Now, let’s dissect the key aspects of a ULIP:
- Sum Assured
This is the guaranteed death benefit paid to your nominee. While a higher sum assured offers greater protection, it also increases your premium. Choose an amount that adequately safeguards your dependents without stretching your finances.
- Premium
This is the amount you pay regularly to maintain the policy. Explore flexible options like premium payment terms and top-up facilities to suit your budget.
- Fund Options
ULIPs offer diverse investment funds like equity, debt, and hybrid. Each carries varying risk-reward profiles. Opt for funds aligned with your risk appetite and investment goals. Remember, you can often switch funds within the policy.
- Charges
ULIPs incur various charges, like premium allocation, fund management, and mortality charges. Compare these across different plans, aiming for policies with minimal charges to maximize your returns.
- Riders
Riders are optional add-ons like critical illness cover or accidental death benefit. Choose riders that address your specific needs, but be mindful of the additional premium they entail.
- Compare and Contrast
Don’t settle for the first ULIP you see. Compare plans from different insurers, focusing on the features mentioned above. Online comparison tools and financial advisors can be valuable resources at this stage.
- Read the Fine Print
Before signing on the dotted line, meticulously read the policy document. Understand terms like lock-in period, surrender value, and claim settlement process. Ensure you’re comfortable with all aspects before committing.
- Additional tips
ULIPs are long-term investments. Stick to your chosen plan and avoid frequent fund switches based on market volatility. Regularly review your policy as your needs and risk tolerance evolve. Adjust your investment strategy or switch funds if necessary. Don’t solely rely on sales brochures.
FAQ
1.What is ULIP, and how does it work?
ULIP stands for Unit Linked Insurance Plan. It combines life insurance coverage with investment in stock and bond markets.
2.What are the benefits of ULIP?
ULIP provides life cover for your loved ones while potentially growing your wealth. It is suitable for long-term financial goals like retirement or a child’s education due to the potential for market-linked returns.
3.Who should consider ULIP?
Individuals with a long-term investment horizon, moderate risk tolerance, and an understanding of market risks can benefit from ULIP.
4. What happens if you stop paying premiums on my ULIP?
Stopping ULIP premiums can lead to the loss of some/all investment & life cover (before lock-in). Continue with lower life cover (depending on the plan).
5. What should I look for while purchasing ULIP?
While purchasing ULIP make sure to have a thorough look at the features of the policy. Match your policy with your requirements and choose something that is affordable and is useful.
