The most common insurance plans we come across today are health insurance plans, loan insurance and so on. Unit Linked Insurance plans are also some important plans that are widely acclaimed across the globe and are considered integrated financial products that feature insurance as well as investments.
What is a ULIP or United Linked Insurance Plan?
A unit linked insurance plan or ULIP is a financial instrument that offers its customers the best of both insurance and investment. ULIPs are provided by insurance companies to those customers who want to benefit from both insurance and make a profit from it.
United Linked Insurance plans offer customers insurance cover and an option to capitalize on a range of investment tools like bonds, stocks and mutual funds. The dual advantage of protection united with the choice to pick your investment opportunity makes ULIPs a widely popular financial instrument among many customers today.
Why Buy ULIPs?
A United Linked Insurance Plan provides investors with numerous advantages, which are listed here:
ULIP offer comprehensive flexibility.
For instance, you can choose which live covers you want, your premium amount can be changed and you can even opt for Riders.
Option of Choosing Your Life Cover
Depending on your financial capabilities, one can choose a cover that suits their requirements as well as budget.
- The Premium Amount Can Be Changed
After a certain point of time, one can change their premium amount. The amount can be increased or decreased depending on the customer’s financial status.
- You Can Opt for Riders
Riders are nothing but added benefits that can be acquired by paying a slightly higher premium sum. Some riders are major illness rider, critical illness rider, and so forth.
ULIPs Offer Transparency
Transparency is one of the vital features of United Linked Insurance Plans. Unlike other investment tools, United Linked Insurance Plans present flexibility to all its patrons and thus they control their ULIP plan to a good degree.
It Offers Liquidity
Most companies offer a lock-in period of three or five years after which each customer is free to make either complete or partial withdrawals.
United Linked Insurance Plans offer protection, returns and also tax exemption under section 80C of the Income Tax Act for life insurance and health insurance plans and under section 80D for life insurance and critical illness riders. in addition, ULIPs are a grand way to bank in a regimented way and also to ensure growth of the amount saved.
ULIP Death and Maturity Benefits:
Death and Maturity Benefits are as follows:
- Death Benefits
Death benefits of United Linked Insurance Plans are accessible in case of ill-fated demise of the policyholder. Usually, the death benefit is equivalent to the sum assured plus fund value. On the other hand, depending upon the cause of death (either accidental or natural) death benefits may differ.
- Maturity Benefits
Maturity benefits are accessible to policyholders when the policyholder survives past the maturity period. Maturity benefits are equivalent to the amount of fund value. Nonetheless, some insurance companies offer additional benefits subject to policy terms & conditions.
How to Choose the Perfect ULIP?
When choosing United Linked Insurance Plans, policyholders ought to keep the ensuing points in mind so they get hold of the maximum returns based on their risk-taking competence:
- Based on Personal Investment Goals: Most policyholders choose ULIPs to meet their personal investment goals. This includes goals like funding a child’s education, planning for one’s retirement, building an amount of funds and so forth. Depending on the goal of investment one should select the type of ULIP that preeminently suits the realization of that goal.
- Associate ULIP Offerings: Subsequently ascertaining the type and the goal of United Linked Insurance Plan that will help achieve it, it’s important to compare ULIP contributions in the market. You should focus on factors like expenses, premium payments and performance of ULIPs.
- Policy Term Flexibility: When choosing a ULIP scheme, it is wise to check if the chosen policies offer you flexibility in terms of benefits. Depending on the period of the policy, look at different ULIPs of different durations.
- Investment Flexibility: Experts advise to look for ULIPs that allow you to investment across different classes, from bonds to stocks to equities. This in turn will result in higher returns and also permits high-risk investments when the market is up even if the primary investment was low-risk.
Eligibility Criteria for United Linked Insurance Plans
The eligibility criteria for ULIPs are mentioned below:
- The person must meet the criteria for entry age (this varies on the insurer and policy type).
- The person should be below the maximum entry age (this again varies on the insurer and policy type).
- The person should be able to pay the premium expenses as per the plan or policy selected.
Types of Unit Linked Insurance Plans (ULIPs)
Unit linked insurance plans can be categorized into various types depending upon the stricture that is being taken as the base.
On the Basis of Funds:
Basis the nature of fund a ULIP capitalizes in, ULIPs can be separated into the below mentioned 3 types –
- Equity Funds
These ULIP schemes utilize the premium amount you pay to endow it partially in equity funds. The possibility of risk is higher since it has an active linkage to the stock market.
- Balanced Funds
This is a ULIP scheme that strives to belt a sense of balance between debt funds and the stock market to minimize risks for customers and enhance their returns.
- Debt Funds
Here the customers’ money is invested in instruments like bonds, where the possibility of risk is lower but the ensuing returns are low too.
On the basis of end use of funds
- For Retirement
These ULIPs are accessible to customers who want to plan their retirement earnings by paying a certain amount of premiums while they are still employed.
- For Child Education
Such ULIPs present benefits for your child’s schooling. These benefits comprise obtaining money at key education milestones at the same time ensuring their education expenses are paid in case of unforeseen circumstances.
- For Wealth Creation
ULIPs solely meant for wealth creation help clients invest and put aside money so that they have a good amount saved up at any particular point of time.