ULIP is a type of linked plan as a portion of the investment is transferred to other funds. It provides maturity or death benefits. On maturity, the insurer receives the fund value or the higher of the assured amount or 105% of the premium paid depending upon the highest value.
ULIP is a type of term insurance policy and is known to be customizable and flexible. It provides many flexible options to the insurers for payment of premium. They can convert their insurance into debt and equity funds later on and withdraw the money anytime they need. They can invest the money in various schemes depending upon their capacity to bear risks.
The ULIPs invest the premium that we have paid in various assets. They also invest in tax saving fixed deposits that can be received after the lock-in-prior of 5 years. The insurer can receive these deposits along with attractive interest after 5 years. Some of the best ULIP plans in India are HDFC Click 2 Wealth, ICICI pru signature, PNB Metlife Smart Premium, SBI Life Wealth Assure etc. People buy ulip insurance policies to enjoy some of the unique advantages.
The reasons to invest in ULIP for a longer period
If you have long-term savings plan, then you must invest in tax-saving investment plan. If you invest in ULIP, you can reduce your tax and also receive attractive amount after maturity. So, they can boost their income and also achieve investment goals. The investor should consider different factors before investing in any schemes such as rate of return, maturity period, lock-in-period, etc. Some of them invest in debt instruments and they receive attractive income after a period of 10 to 20 years. So, investing in ULIP, they can enjoy the following advantages:
- The Lock-in-Period
The insurer cannot withdraw his money for 5 years which is reasonable and yet they can develop a sense of discipline in investing. The money that is invested now can be received only after the fifth year. As it is a long-term plan, it is beneficial to the users. The investors can enjoy the tax benefits every year until they pay the premium. The period of lock-in is calculated from the date of policy issued. The investor can pay the premium monthly or annually. The people buy ulip insurance because they are offered with some flexible options during this period.
- They can pay in flexible options
During the term of investment, they can also mobilize their funds to other instruments. They can switch their funds four times in a year without incurring any expenses. They can enjoy different features such as equity, growth, mobilization of funds according to their capacity to undertake risks, etc. The investors need not maintain the records of the companies invested. They should just choose the policies and mobilize the allocation of the funds during the term. They can move their funds freely anywhere four times a year and can enjoy long-term benefits during the period.
- Better form of returns
It provides equity advantages to the customers and hence the investors can also enjoy ownership. The premium that is paid by them can be invested in various assets and allocated to different funds. Apart from return on investment, they can also enjoy tax savings also. The amount that they receive during the time of maturity also depends upon the performance of equity market during the period.
The endowment plans usually offer benefits to pay lump sum amount after a certain period. It contains the feature of capital protection and hence even if the market is subject to inflation, the insurer is protected. The insurer does not pay any tax after receiving the maturity amount. So, investing in ULIP, they can earn lump sum profit. People buy unit linked insurance plan because they can choose various investments and preferably choose low risk investment.
- Beneficial for the first-time investors
The first time investors are investing in ULIP because it is less risky than mutual funds. People are usually not investing in mutual funds because it is completely subjected to market risks. The investor can receive in lump sum after the maturity period although not more than mutual funds.
The investors who are investing for the first time in any market-linked instruments are investing in ULIPs because it provides protection against inflation. The investors can choose several plans and it is a great tool for the investors to mobilize their funds in various portfolios.
- Tax Advantages and high return
It is among the few schemes that offers both the advantages of tax relief and higher rate of returns. Under sec 80c of the Income Tax act of 1961, they offer long-term benefits.
How the ULIP works?
The insurer collects money from the policyholders and collectively invests them in a fund commonly. The money that is invested by the investors is known as ‘corpus’ funds and is divided into various units. It also consists of a certain face value. So, each investor invests in allocated units proportionately to the amount invested. After investing in ULIP, the investor should pay some fixed amount as a premium for the selected cover. Some portion is also used for giving insurance coverage and the remaining amount is invested in equity or any debt instruments.
They should pay fixed amount of premium for the selected cover amount. During the period, they can also change their investment plans during the process of premium payment. The fund managers help in managing the investments according to the type of fund. They should invest in any debts or any equity instruments. The investors should remember that the lock-in-period for ULIp is for 5 years and they generate returns after this period depending upon the market conditions and their performance. But, it is less-risky compared to mutual funds as the investor is protected by a cover plan. The investors who can afford to undertake risks canbuy unit linked insurancewith equity funds. The persons who cannot afford to undertake risk usually buy the debt funds.
