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Everything you Need to Know About Premium Redirection in ULIPs

Over the years, ULIP plans have become an important investment product. They have gained immense popularity owing to their dual advantages of insurance and investment. By investing in a ULIP policy, you can create a financial security net for your family and also accumulate wealth in the long run because of market-linked returns offered by a ULIP policy.

Apart from insurance and investment, ULIP plans also provide significant tax* exemptions under the prevailing tax* laws. However, a great feature of the ULIP plan is its investment features. In a ULIP policy, you can align your investment portfolio to precisely match your needs, risk tolerance and financial objective. Further, a ULIP plan gives you the flexibility to alter your investment portfolio as per your changing needs and life stage in the future. You can make both retrospective and prospective changes.

ULIP lock-in period is for five years. During this time, you can alter your investment portfolio in two ways. Retrospective changes mean that you have the option to change your fund allocation for the past as well as your future investment. This means that if, after a year of your investment, you realise that you want to switch your existing fund allocation, you can do so for your past and future units of the ULIP plan. This is known as a fund switch.

Alternatively, in terms of prospective changes, you can change your ULIP policy fund allocation in the future but not for the past units of the ULIP plan. This is known as premium redirection, which is a useful strategy that allows you to structure and consequently adapt your portfolio with changing life stages and goals. There are no premium redirection charges.

Here is everything you need to know about premium redirection in ULIP plans:

 

What is a ULIP plan?

ULIP plans are a combination of insurance and investment. A part of your ULIP payment is used to provide you with a comprehensive insurance cover while the other part of the ULIP payment is invested in funds as per your risk tolerance, investment horizon and financial objective.

As per your preference, you can choose to invest in debt, equity or balanced funds. ULIP lock-in period is for five years post which you can easily withdraw your funds without any penalty. ULIP plans also offer tax* benefits, making them one of the most beneficial instruments.

 

What is the premium redirection in a ULIP policy?

 

As per rules, a ULIP lock-in period is five years. When you invest in a ULIP policy, you choose your fund allocation as per your risk tolerance and financial objectives. For instance, you want to earn high returns and have a high-risk appetite at the beginning and hence, invest more in equity-based funds.

However, post the expiry ULIP lock-in period, you feel you have accumulated a significant corpus and are satisfied with the performance of your ULIP plan. But the present market situations are not favourable, and you do not want to take any risk. Moreover, since you are approaching your retirement, you want your fund allocation to be more secure and less risky. In this case, you can shift your investment into a fixed income fund to keep it from the volatility of the market.

In such a case, the redirection of premium comes in. After a year of your ULIP plan tenure, you have the option to redirect your premiums in the future amongst different fund units than your original allocation. So, if you were previously invested in equity, you can invest in debts going forward if it fits your needs. However, your existing fund does not change. The ULIP payment you pay, after opting for the premium redirection option, are utilised for buying the new fund, which can be debt or equity.

 

How is the premium redirection in a ULIP policy different from a premium switch?

Premium redirection in ULIP is different from a premium switch. Premium redirection is when you opt to change how your future ULIP payments will be allocated across different funds. For example, you have 100% of your premiums invested in the equity fund in the ULIP plan. However, after a few years, you want your portfolio to be split between equity and debt in a 50:50 ratio. This is known as a premium redirection in a ULIP plan and is prospective in nature.

On the other hand, a premium switch is a different concept than premium redirection. In a premium switch, your ULIP plan units are moved from one fund to another within the same ULIP. For instance, you are invested in full equity but want to partially or completely shift units from your equity fund to a debt fund.

This is a retrospective change that rebalances your previous investments but does not impact your future investments. You could begin with a 50:50 ratio of debt and equity funds. However, after a few years of the ULIP plan, you realise equity has more potential. So, you can switch to have a 70:30 ratio of equity and debt.

Further, if in the future you realise that equity is not as rewarding as you thought, you can easily change your future premium allocation in a 60:40 ratio or otherwise. Meanwhile, your current units do not change. This second move is a premium redirection in a ULIP plan.

 

When to do premium redirection in ULIP?

You can opt for a premium redirection in ULIP only after our next premium due date. Your future ULIP payment premiums have no bearing on the past ULIP plan premiums, and hence, there are no premium redirection charges. However, you can only opt for two premium redirections in one year.

The best time to opt for a premium redirection in ULIP is when you see a potential in the market to increase your fund value, but you also want to maintain the balance of your portfolio with debt. In such prospective decisions, premium redirection is the best choice.

 

However, as a wise investor, be careful to choose the right ULIP plan to fulfil your needs. You can opt for TATA AIA Life Insurance ULIP and get the flexibility of premium redirection and fund switching for all Tata AIA online payments. Make a smart choice for a safe future!

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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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Disclaimer
  • 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 the 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.

  • 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.