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ULIP is a combination of investment and insurance balancing the equity and debt management based on financial objectives of the investor. It has flexible premium payment and customisable investment option; however, is subject to risk associated with the capital market.
Therefore, before opting for a Unit Linked Insurance Plan, it is important to know various factors like benefits and returns to make the most out of it. Here is a detailed overview to help you in choosing the right plan.
ULIP is a market-linked investment plan for financial protection and long–term savings. It offers multiplied growth through wealth creation and life cover. The new-age ULIP products are a comprehensive proportionate blend of traditional savings under one plan with maximum benefits, ULIP returns, and minimal charges.
Two pillars of traditional savings that ULIP combines are -
Still wondering what ULIP is and how it differs from the traditional savings scheme?
The answer to this question is it is an exclusive option of switching the investment from debt to equity and vice-versa.
Moreover, ULIPS tax savings scheme is one of the most important factors that highly benefit the investors. The investor can claim deduction under the Standard Income Act of 80C.
The working of a Unit Linked Insurance Plan is very interesting. Once an investor pays the premium, the policy provider distributes the amount in two parts -
1. Life cover
2. Investment in debt and equity.
Fund options are selected by the investor based on wealth creation objectives and risk appetite.
ULIP works much like mutual funds, where the insurance company provides Units based on the proportion of the investor's premium invested in the market. Here Units present investments as declared as Net Asset Value.
If you partially withdraw from the corpus, then the specific unit is sold.
Here is an example to demonstrate how ULIP works -
For instance, Shekhar invested in a ULIP for 20 years. His age is 30 years, and he opted to pay a yearly premium of ₹50,000.
Here are the policy details –
|
Initial Sum Insured |
₹50,000 x 10 (years to pay premium) = ₹5,00,000 |
|
Yearly Administration And Other Charges |
₹25,000 |
|
Annual Investment |
₹47,500 |
|
Initial Net Asset Value |
₹10 |
|
Purchased Units |
47500/10 = 4750 |
ULIP plan return in respective cases is -
There are four categories or types of ULIP, depending on the category of investment units -
1. Debt Funds– In this type, the premium is invested in debt instruments like corporate bonds, government securities, etc. Here the return is low, and risk is also lower compared to other types.
2. Equity Funds- Here the premium is invested in company stocks with a goal of capital appreciation. Therefore, the risk is medium to high due to the volatility of the stock market.
3.Hybrid Funds- The premium is equally balanced between equity and debt instruments to minimise the risk of the investment. The inherent risk of equity is counterbalanced by investment in debt.
4. Cash Funds– Here the premium is invested in Money Market Funds like investment in bank deposits, money market instruments, cash funds, etc. It involves slow risk.
Based on financial needs, ULIP is of the following categories -
Steps to invest in ULP are -
Keep the credential details safe with you to further track and access your account.
Before investing in ULIP, you should understand what is ULIP plan in insurance and how it can benefit you. Therefore, focus on the objectives of ULIP and accordingly select the insurance provider and plan options.
Key factors to consider while investing in ULIP are -
ULIP offers an array of benefits, including tax benefits; those are as follows -
ULIP tax benefits
ULIP has higher returns, which varies based on the tenure of investment, withdrawal period and policy of the insurance provider. ULIP returns in 10 years are higher than those in 3 or 5 years. It is ideal to opt for a long term plan over a short term plan.
The investment gives the best returns when the financial strategy is strong. Following the above mentioned prospects and doing a market study can let you reach financial goals. ULIP is one of the most effective plans if investment options are right according to the market.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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