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Need assistance in choosing the right insurance plan? Get a call from our Expert.

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What Is a 4G ULIP?

A ULIP policy clubs two important components of financial planning — insurance and investments. The new 4th generation (4G) ULIP plans are more flexible and transparent, offering tax benefits and liquidity.

Over the years, the financial sector has undergone many changes, and its elements have evolved. Similarly, Indian consumers have also become more aware of financial instruments like ULIPs. They know how the Unit-Linked Insurance Plans (ULIPs) insure their futures and help them create wealth for a period. 
 

Most Indians today know ULIPs and their benefits. But do you know that ULIPs have also evolved? These days, 4G ULIPs have been introduced by popular insurance providers, and they are quickly gaining traction.
 

If you want to know more about 4G ULIP plans, read this blog. It talks about the features of 4th generation ULIPs, and why one should opt for it.

What Is a 4G ULIP?

The full form of ULIP is the Unit Linked Insurance Plan. ULIPs are very different and unique as compared to other insurance products. While others only provide insurance, ULIPs are a mix of insurance and investment. For its unique value proposition, it did not take much time for ULIPs to gain popularity.
 

When you buy a ULIP, a part of your premium goes toward investment, while the other part goes toward life insurance. The premium allocation can vary from one insurer to another.
 

Recently, insurance providers have made several changes in their ULIPs and have thus named them New Age ULIPs or 4th generation ULIPs. These plans offer a host of features and benefits that are better than their predecessors.

What is New in 4G ULIP Plans?

ULIPs have always been expensive compared to other insurance plans, so many people could not afford them. Seeing the hurdle, IRDAI directed that ULIPs should be affordable for people, and several changes occurred. 
 

4th Generation ULIP plans have a lower percentage of premium allocation and reallocation charges. They are more flexible in terms of fund selection and premium allocation.

Features and Benefits of 4th Generation ULIP

 

 

So, if you buy a new generation ULIP, this is what you should expect.
 

  • Tax Benefits: Tax benefits have been one of the primary reasons many people bought insurance plans, and Unit Linked plans are no different. 
     

    4G ULIPs are great choices for the tax benefits they offer. These plans come under the exempt-exempt-exempt or EEE category. In simple words, you can claim tax deductions under Section 80C of the Income Tax Act for the premiums you pay toward the ULIP policy. 
     

    The payout from ULIPs is exempted from income tax under Section 10(10D). It means that after surrender/maturity/partial withdrawal of your ULIP, you will not have to pay any taxes on the money received. However, this will only be allowed if the annual premium amount does not exceed 10% of the sum assured.
     

    Only those who bought ULIPs between 1st April 2012 and 1st February 2021 can claim tax benefits on annual premium amount up to 20% of the sum assured. 
     

    Those who bought a ULIP after 1st February 2021 can claim tax benefits on premiums paid if the annual premium amount does not exceed ₹2,50,000. 
     

    If the total annual premium is higher than ₹2,50,000, the interest earned on the rest of the investment amount (above ₹2,50,000) will be considered capital gain and will be taxed per the slab.
     

    Death proceeds from ULIPs are also exempt from tax.

  • Life Cover: Since a part of your premium goes towards insurance, your ULIP will offer life cover. If you want to purchase a ULIP focusing on life cover, you can do it. Premium insurers like Tata AIA offer various ULIP plans targeted at different purposes. You can take a look. 

  • Long-term Savings: ULIPs are popular choices for creating long-term savings and wealth. As you pay a premium for your ULIP, a part of it goes toward investment. You can control your ULIP investment by choosing between equity, debt, or hybrid funds. You can also decide and modify the investment weightage. Because of the investment part of ULIPS, it can create wealth. 
     

    • Wealth Creation: Long-term investments are ideal for wealth creation, and ULIPs are no different. If you have a higher risk appetite, you can increase your investment in equity funds to get better returns. Risk-averse people can also preserve their wealth by increasing the fund contribution toward debt and hybrid investments. 

  • Liquidity: ULIPs are versatile policies that offer savings, tax advantages, and protection. However, many people in the past complained about ULIP’s lock-in periods. They found it a hindrance to flexibility. But if you think about it, the lock-in period serves two crucial purposes: it eliminates any possibility of discontinuing wealth creation in the nascent stage and mitigates risks. 
     

    A ULIP plan offers good liquidity after its lock-in period. The investors are allowed to make partial withdrawals from their funds. 

  • ULIPs are Flexible: ULIPs offer flexibility in terms of fund selection and resource allocation. As a ULIP owner, you can allocate your funds to different sectors to increase your chances of long-term gains. Bear in mind that there could be a premium allocation charge, and every time you rejig the investment ratio, you may have to pay the premium re-allocation charges. 

  • Transparency: Your premium allocation — the percentage that goes towards investment and insurance, respectively, is clearly intimated to the policyholder. Moreover, the ratio of premium allocation into different types of funds and premium allocation and reallocation charges are all clearly disclosed.

To Conclude

Insurance has been a major component of financial planning, but with products like ULIPs, its importance has grown even more. ULIP plans directly contribute to wealth creation, making them attractive choices for insurance buyers who also want to invest in market-linked2 possibilities without much exposure to volatility. 4G ULIPs are no different and offer better flexibility and affordability.

Get Flexibility to Choose from 10+ Fund Options with our ULIP

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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!

View all posts by Tata AIA Life Insurance

 

Frequently Asked Questions

How is a 4G ULIP plan different from a previous-generation plan?

4th generation ULIPs are more affordable with lowered premium allocation charges and fund management charges. The IRDAI has put a cap on the fund management charges and limited it to 2.25% to 3%.

Is ULIP tax exempted?

You can claim tax benefits for paying premiums for ULIPs under Section 80C. Also, the maturity amount and the death sum assured from ULIPs are not taxable under Section 10(10D).

What is the lock-in period for ULIPs?

ULIPs have a lock-in period of 5 years. After that, you can make partial withdrawals.

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 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.

  • Tax: *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.

  • 2Market-linked returns are subject to market risks and terms & conditions of the product. The assumed rate of returns or illustrated amount may not be guaranteed and depends on market fluctuations.

  • ULIP:

    • 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.