What Should You Look for in Unit Linked Insurance Plans?

Rina was looking hassled. Ashok looked at her, as he laid the table for dinner as she warmed up the food. “What is bothering you my dear? Is it your troublesome colleague again?”

“No Ashok, it’s my insurance advisor. And the bank. Whenever I try to use my accumulated savings for insurance or savings instruments; they provide me with so many contrary options that I end up being very confused, and don’t decide on anything. I don’t want it to remain in my savings account and earn next to nothing in interest.”
Ashok said, “Come, let us have dinner in peace and I shall tell you about ULIPs. I find a lot of merit in investing in them.

After the family dinner, Ashok shared his knowledge of insurance products with his wife.

What is a ULIP?

ULIP is a financial instrument that offers customers best of both the insurance and the investment world. Unit-linked insurance plans or ULIPs as they are generally called is an integrated financial product provided by insurance companies to customers who want to avail insurance as well as grow their money while at it.

Customers have a choice to capitalize on various investment tools like stocks, bonds and mutual funds. The double benefit of protection combined with freedom to choose your investment avenue makes ULIPs a truly popular financial instrument among customers.

Here are a few key features of unit linked insurance plans that make these instruments stand out among a host of investment options.

Flexibility

ULIP schemes offer flexibility that is comprehensive in nature.

Life cover

Life cover that comes with the insurance part of ULIPs can be chosen by customers depending upon their financial capabilities.

Fund option can be chosen

Most insurance providers offer the policyholder the option to choose the fund type in which they want their money to be invested – from aggressive to conservative variants.

Transparency

ULIPs offer high flexibility to customers and thus they control their ULIP policies to a good extent. Clear benefits and features, illustrative brochures and free-look period make sure that policyholders are doubly sure before they start investing in their ULIP schemes.

Liquidity

ULIP schemes offer liquidity to customers depending upon the insurance provider from which they have been availed. Most insurance companies offer a lock-in period of 5 years after which policyholders are free to make either full or partial withdrawals.

Multiple benefits out of a single scheme

ULIPS are ideal for customers who have a lower risk appetite but still want to grow their money.

Tax Benefits

ULIPs offer not only protection and returns but also tax exemption under section 80C of the Income Tax Act and even the maturity amount is tax exempted under section 10(10D) of the Income Tax Act.

Risk mitigation

Since ULIPs invest money in various funds and also offer protection, these products are low-risk investment tools.

Death and maturity benefits

Death and maturity benefits are central to any ULIP policy irrespective of the insurance provider the scheme is availed from.

Death Benefits

Death benefits of ULIPs are offered in case of unfortunate demise of the policyholder. Generally, death benefit is equal to the sum assured plus fund value.

Maturity Benefits

Maturity benefits are offered to policyholders when the policyholder survives beyond the maturity period. Maturity benefits are equal to the amount of fund value.

On the basis of funds that ULIPs invest in

• Equity Funds

These are ULIP schemes that use the premium you pay to invest it in equity funds. The risk ratio for these is higher since an active linkage to stock market.

• Balanced funds

This is a ULIP that strives to strike a balance between debt funds and stock market so as to minimize risk for customers and enhance returns.

• Debt Funds

This type of ULIP invests policyholder’s money in debt instruments such as bonds, where the risk is lower but the returns are low as well.

On the basis of end use of funds

• For retirement planning

These ULIPs are offered for customers who want to plan their retirement earnings by paying premiums while they are employed.

• For child education

The benefits here include rolling out money at key education milestones of your children and also ensuring their education expenses are paid in case of any unforeseen circumstances.

• For wealth creation

ULIPs meant for wealth creation help customers invest and save their money so that they have a good corpus at any particular point of time.

• For medical benefits

ULIPs like these are aimed at providing financial assistance at times of medical emergencies. Special riders can be availed for protection against major illnesses or critical illnesses.

Rina looked relieved and said, “Thanks Ashok. Now I will research online and purchase the new age ULIP online.”