Unit-linked insurance plan (ULIP) is a combination of a life insurance policy and market link investment product. Under this, a part of the premium is invested in equity or debt funds. If you are thinking about ULIP in terms of investment, then here is all the information about it.
What is ULIP?
A unit-linked insurance plan is a product where insurance and investment benefits come together. These are offered by insurance companies. When you pay a premium, a part of it is used by the insurance company to provide you with insurance coverage and the rest is used to invest in debt and equity securities.
It has a lock-in period of 5 years
The combination of insurance and investment in this product comes with a lock-in period of 5 years. Customers are allowed to invest in large, mid or small-cap, debt or balanced investments according to the risk. Along with this, there is also the facility to switch to different funds.
How much do we have to pay?
Like any other financial product, ULIPs also charges a fee. But the good thing in this is that these charges have been reduced considerably by IRDAI during the last few years. There are four main categories of charges in ULIPs – Premium Allocation Charge, Fund Management Charge, Policy Administration Charge and Mortality Charge. Since the launch of ULIP in the online market, premium allocation and policy administration charges are not levied as there is no intermediary involved. At the same time, on the maturity of its plan, investors also get back the mortality charges, making ULIP a special investment product offering free life cover. Also, the fund management charge has now been increased to 1.35% per annum.
Change of funds
Depending on the market situation, most insurance companies allow their investors to transfer their deposits from one fund to another. Investors can change their investment funds as many times as they like, depending on their financial preferences and investment strategy. You can change your funds at any time during the policy period. However, fees are charged from 2000 to 5000 rupees.
Get the benefit of tax rebate
You can also avail tax rebate up to Rs 1.5 under section 80C in investments made in ULIPs. Tax saving is a big benefit in this product because you get a tax rebate on the premium paid. In the last 5 years, most big insurance companies have given a 10 per cent return on it.
ULIP plans cost more than term plans
Many believe that ULIPs are nothing special as a life cover product as the insurance amount premium is limited to 10-15 times the amount premium. ULIP plans with a cover of 1 crore will have a premium of 2-3 lakhs, while a term plan with a cover of 1 crore will have a premium of 7000-8000.
How can you invest in it?
If you are planning to invest in Ulip Plans, then it is very easy to invest in it. You can invest in it through any life insurance company. Apart from this, many insurance companies also provide the facility to invest in it online.