Achieving long-term financial goals can become stressful without adequate planning and an efficient ULIP plan (Unit Linked Insurance Plan). This is because a ULIP policy is a competent financial product that combines market-linked investment and a life cover in a single offering.
The plethora of online ULIP plans in India provides investors with a host of options to select good ULIP plans basis their risk profile and financial obligations. It is also an affordable investment with reduced ULIP plan charges over the years. The policyholder pays ULIP fund management charges to the insurance company for the management of their funds, so they don’t have to go through the hassle of regularly analysing the ULIP share price.
Before these aspects are explained, let us first explore what a ULIP plan is and how it works.
What is a ULIP Plan?
A ULIP plan is a hybrid investment tool that combines the best of two worlds. It provides you with a life cover while allowing you to reap the benefits of the stock market, debt funds, or both on the basis of the policyholder’s preferences. If you initially lack the expertise to invest your monies, you can rely on the insurance company’s fund managers to take care of the ULIP share price. For this, the insurance company levies ULIP fund management charges that are capped at 1.5% by IRDAI (Insurance Regulatory and Development Authority of India). The features of ULIP have modified significantly since its inception in 1971 to offer unique and hassle-free investments, making them a few among the best savings plan with high returns. With an analysis of online ULIP plans in India, policyholders can find good ULIP plans that meet their requirements.
Policyholders can opt for whole life ULIP plans as they guarantee death benefits, along with survival benefits and maturity benefits.
How do ULIPs work?
When you invest in a ULIP plan, you are required to make regular payments to the insurance company in the form of premiums. A part of this premium amount is allocated to investments in equity, debt, or hybrid funds, and the balance is used in providing an insurance cover. The fund managers in the insurance company manage the investments, and the policyholder is therefore spared the hassle to regularly track their ULIP share price.
A ULIP plan permits switching between debt and equity funds based on the policyholder’s risk appetite. As ULIPs come with a lock-in period of five years, they are an ideal money savings plan. Policyholders can make use of free tools such as a ULIP calculator to calculate the premium amount, returns and even compare policies of different online ULIP plans in India.
Types of Funds in ULIPs
Before you begin your search for a ULIP, it is important to be aware of the different types of funds in a ULIP. Each fund corresponds to a specific risk appetite, and your choice of the fund will depend on your willingness to take investment risks:
· Equity Funds: Investments made in equity or equity-oriented assets such as stocks of various companies. This is a high-risk, high-reward investment. If you have a medium- to high-risk profile, then you can choose to invest in equity-based funds.
· Debt Funds: Investments in debt instruments or the money market instruments, government securities, bonds, and likewise. This is a low-risk investment with moderate returns.
· Hybrid Funds: Here, the premiums are invested in a combination of equity and debt funds. Flexibility is among the primary features of ULIP, and with hybrid funds, policyholders can decide the percentage of the funds that can be invested in equity or debt, making investments less volatile than the returns obtained from pure equity funds.
It is important to undertake a detailed analysis before you look for good ULIP plans. According to risk appetites, policyholders can choose to invest in equity-oriented funds initially, and as you move closer to your goal, transfer the investments to debt funds.
Benefits and Features of a ULIP Plan
Here is a list of the most prominent features of a ULIP plan that will convince you to invest in good ULIP plans:
· Flexibility: ULIPs allow the option to switch between funds based on changing financial requirements.
· Transparency: ULIP plan charges are revealed to the policyholder before investment.
· Savings Plan: ULIPs are among the best savings plan with high returns as they come in with a lock-in period to ensure disciplined investment.
· Liquidity: ULIPs allow a partial withdrawal to help deal with unfortunate events.
· Finance long-term goals: ULIPs are a great investment option to achieve long-term goals as the money invested gets compounded to offer high returns in the future.
Tax Benefits of ULIPs
Over and above the aforementioned benefits, one of the interesting features is the ULIP tax exemption and deduction that is offered under the Indian Income Tax Act:
· Section 80C: policyholders can claim for a deduction of up to ₹1,50,000 lakhs on the premiums paid towards the ULIP plan.
· Section 10 (10D): the maturity proceeds (under specific conditions and the life cover pay-out from a ULIP policy are exempted from taxes under specific conditions.
The ULIP tax exemption on maturity pay-outs are subject to conditions as per the amendments in the Finance Bill 2021:
· ULIP policies, bought on or after 1st February 2021, where the unit term insurance premium paid is more than ₹2,50,000, the maturity benefits will attract Long Term Capital Gains (LTCG) tax.
· Individuals holding multiple ULIPs with an aggregate premium over ₹2,50,000 will have to pay tax on the proceeds.
Despite these conditions, ULIPs are considered to be a suitable money savings plan as the aforementioned tax slots make it sufficient for a large section of investors to achieve their long-term financial goals.
ULIP plan of Edelweiss Tokio Life Insurance – Wealth Ultima helps policyholders grow their wealth steadily and systemically to help achieve financial goals in a worry-free manner. It offers a range of features and benefits to ensure protection in your long and happy life:
1. The dual benefit of protection and wealth accumulation in a single plan
2. Multiple additions for that ‘little extra something’ from us
3. Little Champ Benefit to help you secure your child’s dreams
4. Whole Life ULIP plan that offers coverage up to 100 years of age
5. Systematic Monthly Plan for premium payments
6. Choice of Self-Managed Investment Plan (you manage your funds and switches) and Systematic Transfer Plan (we help you choose your investment strategy)
7. Systematic Withdrawal Plan (SWP) helps you receive regular pay-outs after the 10th year
8. ULIP tax exemption and benefits as applicable under the prevailing tax rules
9. With this plan, you do not have to pay Fund Switching Charges, Partial Withdrawal Charges and Premium Redirection Charges.
ULIPs have come a long way and have been firmly established as a transparent and easy mode of ensuring investment + insurance in the same plan. For more information on Wealth Ultima, give us a call today!
Neha Panchal - Financial Content Writer
Neha used to be an Engineer by Profession and Writer by passion, which is until she started pursuing full-time writing. She's presently working as a Financial Content Writer, with a keen interest in all things related to the Insurance Sector.