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5 Lesser-Known Facts about ULIPs You Must Know

25-August-2021 |

There are several factors you must consider while creating an investment portfolio, including adequate protection from risks, income protection, and wealth appreciation. In this context, life insurance is the best product for protection from uncertainties that can derail a family’s dreams in the wake of the passing of the primary breadwinner.


In recent decades, life insurance companies have developed combo insurance plans that combine the benefit of returns from investment along with life cover and protection

The aforementioned instruments are an efficient method to safeguard your financial future as well as enhance your wealth. It is important to note that even a single premium policy under an insurance savings plan can generate substantial gains for the investor over a long period.

 

What is a ULIP plan?

A Unit Linked insurance plan or ULIP combines the benefits of life protection and market-linked returns in one investment instrument. The premium you pay under the plan is partially allocated toward buying a life cover whilst the remaining amount is invested in funds that you can choose according to your risk preferences and financial needs.

If you wish to assume a high degree of risk, you can choose equity-oriented funds which bring high but volatile returns. On the other hand, if you have a low risk appetite, you can choose debt-oriented funds and be assured of a constant return. You also have the option to choose hybrid funds that invest partly in equity-based instruments and partly in debt-based ones.

What is meant by ULIP returns?

In ULIP plans, returns are determined by the increase in the Net Asset Value (NAV) of the funds under the plan. Each investor in the fund is allocated a certain number of units proportionate to their investment in the fund. If the NAV of the selected fund increases, the unitholder gains in terms of the number of units allocated to them. At the end of the plan’s term, the fund value is used as the basis to provide either a lump-sum amount to the investor or a regular income for a fixed number of years.

 

Here Are Some Quick Facts About ULIPs

Investing in a ULIP is easy however you should read the information brochure carefully to acquaint yourself with the terms of the plan. ULIPs have some lesser-known features about which you should be aware to derive maximum benefits from the plan you choose.

Some of the aforementioned features have been discussed below.

  1. The flexibility to switch between funds

    When you purchase a ULIP plan, you can choose the fund on the basis of your risk profile and your financial plan. However, you can switch from one fund to another depending on the performance of the fund and your expectations about the fund’s growth. In this context, a certain number of free switches are allowed and you can easily complete the process online.

  2.  

  3. Flexibility in maturity date

    Tied to the long-term vision of ULIP plans, this facility should be used to minimise losses resulting from adverse market conditions. If your plan’s maturity happens during a market downturn, the flexibility to extend your maturity date can allow you to recoup the losses and bounce back when the market picks up.

  4. The option to choose a higher death benefit

    In ULIP policies, the sum assured is computed as a certain multiple of the annual premium and the death benefit is determined as the higher value between the fund’s value and the sum assured. Therefore, it is advisable to choose a high sum assured to get better coverage even if the premium is slightly higher.

  5. Tax* benefits

    The contributions to ULIPs qualify for tax* deduction under Section 80C of the Income Tax Act, 1961 and the death benefit is tax-exempt under Section 10(10D). It is important to note that the sum assured should not be more than ten times the annual premium. The ULIP tax* benefits can help you enhance your net return on investment while also providing you with life cover protection. Therefore, while planning for the taxation aspect of your investments, ULIP premium should be considered for making full utilisation of the applicable tax* benefits.

  6. ULIP charges

    The fund manager for your ULIP levies charges on the unitholders for premium allocation, fund management, policy administration, switching, etc. The aforementioned charges are reflected as a reduction in the number of units held by you in said fund. You should understand the quantum of these charges to monitor and manage the returns from the fund and avoid any unnecessary levy of charges.

 
Are ULIPs a good investment?

ULIPs are versatile instruments for investment that have the features of insurance as well as investment. Therefore, ULIPs offer a wide range of benefits to investors and must be included in your portfolio. Some important ULIP benefits have been discussed below.

  • ULIPs encourage the habit of systematic savings through periodic contributions to the plan.

  • ULIPs offer tax* benefits on the premium payments.

  • ULIPs allow you to choose between different types of funds depending on your financial needs and your risk appetite.

  • ULIP returns are usually realised over a long period, thereby providing a substantial cushion against inflation to investors.

A majority of investors exit their ULIP after the completion of the predetermined lock-in period. However, ULIP benefits can be fully realised only if you choose to stay on for the full term of the plan. Therefore, it is advisable to keep your ULIP plan active even after its lock-in period has come to an end. Most insurance providers offer multiple options to investors vis-a-vis the term of the premium payment.

For instance, Tata AIA offers investors the flexibility to choose the mode and duration of discharging their premium obligations. Under the Tata AIA investment plan, you can opt for a single premium policy payment or premium payment for a limited term of 5 to 7 years. Furthermore, there are more than 10 fund options you can choose from according to the timelines of your financial needs.

You can also switch between funds in response to the changes in market conditions. Being proactive in keeping your ULIP investments updated allows you to maximise the returns from them. Furthermore, ULIP plans can be made more extensive in coverage by including riders# like the waiver of premium rider (UIN- 110B029V02) under which no further premiums need to be paid in the event of total and permanent disability to the policyholder or diagnosis of a terminal illness during the plan’s term.

 

Conclusion

You must not perceive ULIP benefits as being ridden with risks and market volatility. There are several less known features of ULIPs that can maximise your returns from a ULIP plan, including switching between funds according to their market performance, choosing a suitable sum assured and maturity date, and avoiding transactions that cause unnecessary levy of ULIP charges. With these facts in mind, you can confidently include a ULIP plan as a part of your effort to increase your wealth.

L&C/Advt/2021/Oct/1872

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Need more information?
Let us help you

TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

Looking to get a new plan? 
Connect with us now

+91

TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

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Read More
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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimers
  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • #Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office

  • IN THIS POLICY, THE INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER. THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICYHOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.

  • Past performance is not indicative of future performance.

  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.

  • Please make your own independent decision after consulting your financial or other professional advisors.

Need more information?
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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.