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What do you see when you imagine your future? A happy family, educated children, and a financially stable and secure life, right? If you’re looking to secure the future and also build your wealth, a ULIP plan is a financial product worth considering. By buying a ULIP policy, policyholders get the benefit of both insurance coverage and investment returns under a single scheme.
Let’s explore the different types of ULIP plans.
A Unit Linked Insurance Plan (ULIP) is a hybrid plan offered by insurance companies that combines the benefits of insurance coverage and also allows for wealth generation through investments. The premium paid by the policyholder partly goes towards insurance coverage, and the rest is allocated to a fund invested in asset classes according to the ULIP policy chosen by the policyholder. It is a long-term plan, and it is chosen based on the financial goals and risk appetite of the policyholder.
ULIP plans can be categorized based on investment or the ULIP policy’s features in wealth creation.
Based on investment:
In this ULIP plan, the money is invested in equity and equity-related funds such as a company’s stocks. This type of investment is susceptible to market risks as the entire fund is invested in equity. Therefore, it is suitable for people with a big risk appetite in the early stages of financial planning looking to generate maximum returns on investment.
Depending on the market conditions and the performance of the investment, the ULIP returns could potentially be very high.
In this ULIP plan, the funds are invested in debt instruments, such as government securities or corporate bonds, or fixed-rate bonds. Compared to equity investments, this is a less risky option and is suitable for people who have a moderate risk appetite, as it could potentially yield medium returns on investment.
Under this plan, the ULIP funds are invested in money market instruments, cash deposits, or bank deposits with a specified level of interest. It is a safe investment and is suitable for people with a low risk appetite. It tends to yield lower returns.
This ULIP plan invests the money in a combination of debt and equity instruments, thereby balancing the debt and equity component of the investment. The risk is distributed over different classes of investment and may sometimes include money market instruments as well. Therefore, this is a medium-risk plan where the ULIP returns could potentially range from medium to high returns.
Based on the ULIP policy’s benefits/features in wealth creation:
Life Stage Based and Non-Life Stage Based:
Your risk appetites and financial goals change as time passes. Life-stage-based plans recognize this and vary your investments accordingly. For instance, under these plans, the first allocation when the policyholder is younger might be more equity-heavy. However, as the policyholder gets older, the investment is changed accordingly to reduce the risk.
Guaranteed1 and Non-Guaranteed1 Plans:
A guaranteed1 ULIP policy is suitable for savings and shields the policyholder from intensive market risks by limiting equity exposure. In non-guaranteed1 plans, the policyholder can choose the type of investments they want to make from the funds available under the policy. So, if they want to invest more in equity, they can choose to do so, depending on their financial goals.
Single Premium and Regular Premium:
This feature depends on the capability of the policy buyer to pay the premium. Depending on the ULIP policy, the policyholder can pay the premium in one lump sum when buying the ULIP policy or at regular intervals, such as monthly, yearly, etc.
Which ULIP Policy should you buy?
The ideal ULIP policy for you is one that aligns with your financial goals and your risk appetite. You should consider certain factors before buying a ULIP policy. They are:
Financial and Investment Goals:
There are many types of ULIP policies, so it is essential to evaluate your financial goals before buying one. You may want to secure your post-retirement years, provide for your children’s education or marriage, or you may want to start early and build a corpus for later years.
Secondly, you should evaluate how much you are willing to invest and whether you are looking to generate savings or trying to build your wealth.
There are different types of funds in ULIP plans. Depending on your financial goals and the stage at which you are buying the ULIP policy, your risk appetite will differ.
For a person starting young, the risk appetite is higher. Therefore, they will most likely invest in equity funds or make higher-risk investments. Conversely, the later you avail of it or the older you are, your risk appetite will likely be lower. As seen earlier, different investments come with different risk profiles to match different risk appetites.
Features of the ULIP Policy:
A ULIP policy can allow you to switch between funds. Switching refers to switching between debt or equity investments, depending on the market conditions so that you are not overexposed to market risks.
ULIP plans also enjoy tax* benefits. The premium paid under a ULIP is deductible under Section 80C of the Income Tax, 1961, up to a limit of ₹ 1.5 lakhs for a premium payment up to 10% of the sum assured. The sum assured when paid in the event of a policyholder’s death is exempt from tax for the receiver under Section 10 (10D) of the Income Tax Act, 1961.
Ultimately, ULIPs are long-term investments, and ‘time in the market is better than timing the market’. By staying invested over a long period, you can ride out the market cycles and ensure your investments yield returns, making ULIPs a balanced option for meeting your financial goals.
TATA AIA Life Insurance’s ULIP policies offer several benefits, such as the option of a waiver of premium rider# in the case of partial or total disablement, which you can add to your plan. You also have the option to make your Tata AIA Life Insurance policy payment in a lump sum or at regular intervals for a fixed period, and you can choose from various funds available based on your financial needs.
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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.
1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry
#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 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 POLICY HOLDER 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 advisor.