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What Is Unit Linked Insurance Plan?

ULIP is the acronym for Unit Linked Insurance Plan. A ULIP is a combination of investment and insurance. A part of the premium amount is used to provide a life insurance cover while the remaining sum is invested to offer you the potential of wealth creation. This product is suitable for customers who want to dip their hands in the stock market while having a conservative outlook towards life. The insurance cover provided with a ULIP does just that. It provides the customer with a safety net, letting them grow their savings without any worries.Read More

IDFC FIRST Bank brings you some of the best ULIP plans from three leading Life insurance companies in the Industry – ICICI Prudential, HDFC Life, and Bajaj Allianz. We aim to provide a curated set of products to simplify the selection process for our customers.Read Less


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The best Unit Linked Insurance Plan offers several advantages. Some of the unit linked insurance plan benefits are explained below in detail - 

    Life Protection and Investment: ULIPs offer the dual benefit of a life insurance cover as well as savings at market-linked returns. With the feeling of peace of having life protection, one can invest in a range of market funds to earn a high rate of return.

    Market-linked Returns: ULIP plans present an opportunity to earn market-linked returns hence generally give better returns than traditional products like Endowment plans

    Death Benefits: A unit-linked plan offers death benefits in case of the death of the insured during the policy term. While the death benefits are catered to as SA along with the value of the fund, benefits may differ based on the cause of the demise of the insured.

    Maturity Benefits: Usually, maturity benefits are catered to the insured as the sum of the value of the fund. Nevertheless, some insurance companies may cater to add-on benefits based on the terms and conditions.

    Withdrawal Benefits: A unit-linked insurance plan comes in handy in such situations. In case of emergency, a ULIP plan allows its investors to withdraw a portion of the investments, after the completion of a pre-determined timeline. Generally, such withdrawals are tax-free.

    Income Tax Benefits on ULIP: On top of the insurance and investment benefits, Unit Linked Insurance Plan also offers income tax exemption benefits for a maximum of Rs. 1.5 lakh u/s 80C of the Income Tax Act, 1961. Moreover, the maturity benefits on ULIPs are also tax-free if the minimum Sum Assured or the Death Benefit should be at a minimum of 10 times the annual premium.

    Flexibility: ULIPs give a lot of flexibility to the policyholder. One has the option to switch between different funds (between debt and equity)  to match one’s changing needs. There is also a facility to partially withdraw from the fund, subject to special charges and conditions.

Frequently Asked Questions

How do ULIPs work?

In ULIPs, one share of the paid premium goes towards ensuring the life cover for the policyholder and, the other share of the paid premium is invested in various types of fund options. The investors can choose the fund options basis their wealth creation goals and risk appetite. In the event of the untimely and unfortunate demise of the policyholder, the nominated beneficiaries will receive the insurance and/or the fund value, whichever is higher, based on the type of unit-linked insurance plan.

Much like the mutual funds, the insurance company will give the ‘Units’ basis the proportion of the investor’s money invested in the market. This unit is the representation of the investment and is allocated a NAV that is evaluated and declared daily.

How to Choose the Best ULIP plans?

There are many features of investment linked insurance that make it an ideal investment choice. Here’s a list of some pointers to consider while buying one:

Analysis of Personal Investment Goals: Before choosing a ULIP plan; it is a pre-condition for every investor to analyse their long-term financial goals. It is mandated to opt for a ULIP that is in sync with the investment horizon and the investment goals.

Decide Insurance Objectives: One should first decide the insurance objectives and then select a ULIP plan that fulfils them. If one is young, current and future family requirements need to be considered because the insurance cover should be adequate if something happens to the insured.

Decide Investment Goals: Investment goals are extremely important. Investment goals may vary from having a corpus for the higher education requirements of the children after some years to having sizeable funds for the child’s marriage. They may also include having the requisite amount of money for post-retirement needs.

Flexibility: Yet another factor that is to be taken into consideration while choosing a ULIP plan is the flexibility that is offered by the intended unit-linked plan. Here are two things that the investor must consider on the parameters of flexibility:

·         Policy Tenure Flexibility: Many ULIP plans are long-term; resultantly, they tag along with a lock-in period of 3 to 5 years. Before investing, investors should analyse the investment horizon.

·         Investment Flexibility: The unit-linked insurance plan allows the policyholders to pick the investment options even before investing in their intended unit-linked insurance plans. Basis on the risk appetite, the investors can choose from hybrid, equity, or debt ULIP plans.

Evaluate Risk Profile and Financial Stability: It is important to appraise one’s risk profile before choosing a ULIP plan. Younger people typically have a higher risk appetite hence opt for equity-focused plans while the low-risk appetite cluster invests in debt instruments that provide stability albeit with limited returns.

Understand Different Charges Levied: While choosing a ULIP plan, we need to understand the charges. These include initial charges, premium allocation fee, fund management fee, surrender charges, mortality charges, and administration and service charges. Proper information and knowledge about charges help to choose the right ULIP plan.

Check the Performance of the Plan: To understand if the funds are performing well, we evaluate the performance of the ULIP plan for the past 3 to 4 years against benchmark indices like Nifty and Sensex to understand whether the funds are performing well.

Claim Settlement Ratio: The claim settlement ratio refers to the percentage of claims settled by the insurance company as compared to the total numbers of claims received by the company.

Investment Strategies Offered: There are many ULIP plans which provide an opportunity to make a strategic investment like if you want to create a financial cushion for retirement then you can invest in retirement ULIP plan or if you want to make an investment to provide financial security to your child then you can invest in a child ULIP plan.

What Type of Funds do ULIP Plans Offer?

Insurance companies offer an array of funds out of which one can choose, based on their investment objectives, time horizon, and risk profile. Each fund has a different element of risk and consequently offers different returns.

Cash Funds: They are sometimes referred to as Money Market Funds. Cash funds come under the low-risk category and invest in cash, bank deposits and money market instruments that have the lower risk.

Debt Funds: These figure in the medium risk category and invest in debt instruments like government securities, corporate bonds and other low-risk fixed income instruments. While the returns are lower in comparison to equity, the risk is low as well. The returns from these funds are slightly higher than cash funds.

Balanced or Hybrid Funds: They combine equity investment with fixed interest instruments and are of medium risk in nature. These hybrid funds give adequate exposure to stock markets as well as debt instruments. The risk inherent in equity is counterbalanced by the safer investments in debt.

Equity Funds: These ULIP funds fall in the medium to the high-risk category as they primarily invest in company stocks with the objective of capital appreciation. Since these funds invest in the stock markets, the fund performance is in line with the highs and lows due to volatility in the stock market.

ULIP Charges

ULIPs do have certain charges associated with them, which can be sub-divided into multiple categories. Following are the ones you must know:

Premium Allocation Charges: This charge is levied to recover the initial expense incurred towards issuing the policy and is deducted from the premium. Expenses such as the medical expense and the cost of underwriting. The charge is imposed beforehand on the premium paid by the investor.

Policy Administration Charges: The insurer incurs some expenses towards the administration of an insurance policy and these expenses form the policy administration charges.  

Surrender Charges: These charges are levied when there is early or premature encashment of units. The rate and the slabs at which these charges are levied have been regulated by IRDA and the charge shall not exceed 50 basis points per annum on the unit fund value and no other charge apart from this shall be levied by the insurer on surrender of the policy.

Mortality Charges: When a policy is issued, the insurer provides the cover based on the policyholder’s life expectancy (factors like gender, age, health conditions etc.) In case the policyholder does not survive till the expected age, the mortality charges compensate the insurer.

Fund Management Charges: This is levied by the insurer towards managing the policyholder’s funds. As per guidelines given by IRDA, these charges must not cross the capping of 1.5% and is chargeable as a percentage of the fund. These charges vary from fund to fund.

Fund Switching Charges: These charges are charged by the insurer when the policyholder switches between fund options. ULIPs offer a limited number of fund-switch options and while doing so, the policyholder has to pay some charges to the insurer.

Discontinuance Charges: On premature discontinuation of a plan within the lock-in period, the insurer deducts a small fee. Since these charges are preset by IRDA, these are the same for almost all policies.

Partial Withdrawal Charges: The policyholder can carry out lump sum withdrawals from the fund after the policy lapses and subject to the pre-determined conditions. Nevertheless, the partial withdrawals attract charges, as specified in the respective policy document.

What is ULIP’s NAV?

The net asset value (NAV) of a unit-linked insurance plan (ULIP) is the total value of its holdings net of admissible expenses.

The NAV is calculated by adding the ULIP’s holdings as on a particular day less all liabilities like management fees, operating expenses, marketing expenses, among other permissible expenses and charges.

The net asset value represents the value of the total holdings of the ULIP. It is then divided by the number of units held by investors, representing the net asset value per unit (NAV/unit).

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