A unit-linked insurance plan provides insurance with investment in market-linked funds. ULIP plans provide protection along with wealth creation. A professional fund manager handles the investment corpus, and investors are provided various ULIP fund options to choose from, ranging from debt to equity funds.
You can choose a fund option depending on your long-term financial goal. If the target is wealth creation over the long run, you may choose an equity fund. You can switch your investments between different types of ULIP funds based on your risk appetite and market conditions during the tenure of the policy. Truly, ULIPs are one of the most innovative insurance-investment products ever designed.
Most people familiar with ULIPs know that it is a very effective long-term investment tool. Whether your financial goal is retirement, a child’s higher education, buying a home or going on a world tour, ULIPs can be customised according to your life goals, time horizon and risk appetite. Apart from being an insurance, investment and tax-saving tool, a ULIP investment plan can also be used as an effective risk management tool.
You can also maximise the portion of premium investment by buying online ULIPs, as these plans come with very low ULIP charges because the insurer is able to apportion the commission towards investment which otherwise would have been paid to the agent. Here are some reasons why you should invest in ULIPs -
What is a unit in a ULIP plan?
When you invest in a ULIP, a part of the premium, net of charges, is allocated to chosen funds. A unit represents a share of the fund that you choose. The number of units that you get depends on your premium and the Net Asset Value (NAV) of the fund. It is calculated by dividing the premium invested in market linked funds by the NAV.
For instance, say the NAV of the fund is ₹10 and you pay ₹1 lakh in premium, After factoring in the relevant charges, ₹98,000 is allocated to the fund. In such a case, you will get 9800 units of the fund.
What is a Unit Linked Fund?
A unit-linked fund is a part of a ULIP which is a life insurance plan offering the dual benefits of insurance coverage and market-linked returns. The ULIP fund is an investment fund which pools the money from policyholders and then invests the pooled corpus in market-linked securities. The choice of securities depends on the type of fund. For instance, equity funds would invest in equity and equity-oriented securities, while debt funds would invest in debt instruments.
ULIPs offer different types of unit-linked funds, and you can choose one or more funds depending on your risk appetite and investment strategy.
What is Net Asset Value in ULIP?
The Net Asset Value (NAV) represents the per unit cost of the fund. Since the ULIP fund invests in different securities, the Net Asset Value or NAV is calculated by a specific formula, which involves dividing the total value of the portfolio held by the fund (after deducting relevant charges) by the number of securities held.
The NAV of the fund changes continuously as the values of the securities change with market movements.
Does ULIP have a high cost structure?
Not anymore. New-age online ULIP investment plans are very reasonable with cost structure. Fund management charges are not more than 1.35% as per IRDAI Regulations. ULIP charges, such mortality charges are now negligible, and select insurers provide a return of mortality charges. Additionally, there are ULIP plans that provide zero allocation charges and zero policy administration charges.
How do I know how my ULIP investment is performing?
With online ULIP tracking, maintaining your ULIP investment plan is very easy. According to IRDAI Regulations in this regard, your insurance company has to declare the daily Net Asset Value (NAV) of the fund. Some insurers also provide daily insights, fund switching options, withdrawals and top-ups online.
Are ULIP investment plans subject to market volatility?
Fund allocation in a ULIP fund varies according to the choice a customer makes and prevailing market conditions. As ULIPs are market-linked products, market conditions will affect them. That is the reason why ULIP should be utilised as a long-term investment plan to tide over price volatility and maximise returns.
What is Fund Value in ULIP, and how is it calculated?
The fund value is the total value of the invested premium at a given time. It is calculated by multiplying the total number of units a policyholder owns with the latest NAV of the funds into which have invested.
For instance, if you have 10,000 units and the latest NAV of the fund is ₹125, the available fund value would be ₹12,50,000.
What is the amount that I receive at the end of my ULIP policy term?
When the ULIP term comes to an end, the policy is said to mature. At this time, you are eligible for a maturity benefit, which is the fund value of the policy.
What is a Switch in ULIP?
A switch is a flexible feature in ULIPs that enables you to manage your investments effectively. The switch allows youmove (switch) from one market linked fund to another to at your discretion, during the policy tenure, as per the terms and conditions of the policy.
For instance, if you have invested in the equity fund and the equity market turns volatile, you can switch to a debt fund to preserve your returns.
What is Premium Redirection in ULIP?
Premium redirection means changing the allocation of future premiums. In other words, premium redirection allows you to redirect subsequent premiums to another fund, which is different from the existing fund that you selected.
For instance, say you chose a large-cap equity fund when investing in a ULIP. From the third policy year, you want to invest your premiums in the mid-cap equity fund. In such a case, you can opt for premium redirection before the start of the third year and choose mid-cap equity funds. Your premiums would be redirected to the chosen fund instead of being allocated to the large-cap equity fund.
Can I make withdrawals from my ULIP policy?
Yes, ULIPs allow partial withdrawals after the completion of the lock-in period of 5 years. However, there are minimum and maximum limits of such withdrawals that you should understand before exercising the option.
Can I stop my ULIP policy before its entire duration? Will I be charged for it?
Yes, you can stop your ULIP policy before the completion of the entire duration. There are two alternatives in this scenario.
- You stop paying the premium but continue with the policy. In this case, the policy would be called a paid-up policy. Your fund value would keep attracting applicable charges.
- You stop paying the premium, and you also choose to exit the policy. This will be called surrendering the ULIP. If you surrender the policy within the lock-in period of 5 years, you will be charged a discontinuation charge. The risk cover and rider cover, if any, shall cease. The fund value, net of the charge, would be switched to the discontinued policy fund.
However, if you surrender the policy after the lock-in period of 5 years, no surrender or discontinuation charges would apply. The available fund value would be paid as the surrender value, and the policy would be terminated.
What are the charges of a ULIP?
There are different charges under a ULIP, which include the following -
- Premium allocation charge -This is a percentage of the premium appropriated towards charges from the premium received
- Mortality charge - This charge is the cost of insurance coverage provided under the policy
- Fund management charge - This charge is levied for managing the different types of ULIP funds.
- Policy administration charge - This charge is levied for meeting the administrative costs
- Surrender or policy discontinuation charge - This charge is applicable if you surrender or discontinue the policy before the
- Switching charge - This charge is levied if you make switches in your policy over and above the free switches already provided
- Partial withdrawal charge - This charge applies to partial withdrawals
- Premium redirection charge - This charge applies to premium redirections.
What is the interest rate of a ULIP?
The interest rate of a ULIP is not guaranteed. It depends on the fund selected and market .
What is a Regular Premium Policy in ULIP?
A regular premium policy means a ULIP wherein premiums are payable for the entire duration of the plan. For instance, if you buy a ULIP with a term of 20 years, premiums would be payable for 20 years.
So, under regular premium ULIPs, the premium payment term is equal to the policy term.
What is the monthly premium due date in a ULIP plan?
The monthly premium due date would be the same date as the following month. For instance, if you buy a ULIP on the 20th of June and you choose the monthly premium payment mode, the next monthly premium would fall due on the 20th of July.
What does "Cover Cessation Date" mean in ULIP?
The cover cessation date means the date on which the coverage of the ULIP stops. Usually, the cover cessation date is the maturity date when the plan matures, and the coverage stops. However, if you surrender the policy before maturity, the cover cessation date would be the date when the policy would terminate.
What is the lock-in period of a ULIP?
The lock-in period of a ULIP is 5 years. During this period, if you surrender the policy, the surrender value would not be paid immediately. It would be paid only after the lock-in period is over. Moreover, partial withdrawals are also not allowed during the lock-in period.
When is the right time to invest in a ULIP?
There is no specific right time, as the need for buying a ULIP depends on your financial goals and needs. However, it is recommended to buy a ULIP as soon as possible so that you can give your invested premium time to grow into a suitable corpus with the power of compounding.
Can I buy ULIP plans online?
Yes, you can buy a ULIP plan online through the website or mobile application of the insurance company.
What are the eligibility criteria for ULIPs?
The eligibility criteria depend on the specific ULIP that you choose to buy. Some of the common criteria of ULIPs include -
- Minimum and maximum entry age
- Minimum and maximum maturity
- Minimum and maximum p
- Minimum and maximum
- Minimum and maximum premium payment term, etc.
How do I raise claim on my ULIP?
To a claim, inform the insurance company and submit a duly filled and signed claim form. You would also have to submit the relevant claim-related documents for claim settlement.
As an investor, it is important to have a broader understanding of how the financial markets work. It will help you greatly in the decision-making process while you manage your ULIP policy. As ULIPs allow policyholders to constantly monitor and review the progress of their portfolio, you must take maximum advantage of this option. Regular review and monitoring of your portfolio helps you to optimise your asset allocation and maximise returns.
