A ULIP plan comes with several benefits that can be of great use to the investors. But before coming to the benefits, let's understand what a ULIP plan is? And how does it work? Read all about it here:
A ULIP plan gives you the freedom to explore the capital market for investments, and also, at the same time, it offers important risk cover. ULIP is a two-in-one plan which has an aim to offer investment and protection to the investors, which are customized according to one's requirements. As a comprehensive plan, the protection and investment part can be managed as per a specific buyer's choices and needs.
Fact: Earlier, the share market and mutual funds were an individual's investment priority. Then, ULIPs were launched by the insurers to provide customers with the promise of high investment returns. And, ULIPs have now become popular among a number of investors as the ULIP plans offer the dual benefit of wealth growth and insurance cover.
How ULIP works?
Before you go for a ULIP plan investment, it is important to have a deep insight on how it works.
When you pay the premium for a policy, a part of it is used for providing life cover, and the rest is invested. The premium amount is invested into the fund you choose. The insurer has various investment funds with varying risk levels in which you can select - debt, equity, hybrid funds, or balanced funds.
The insurer assigns 'Units' to each investor in proportion to the invested money. This amount has a Net Asset Value (NAV). But the question here is, who looks after the entire fund? Well, the fund managers are responsible for keeping track of the invested funds. The units NAV increase or decrease as per the market performance of the investment.
When a ULIP plan is matured, the insurance company pays you the fund value depending on the market value. It means you will get the NAV of the units allocated to you when the plan is matured.
In case of an unpredictable situation such as the sudden demise of the policyholder, then the insurance company pays your nominee the higher of the sum assured or the fund value.
Let’s come to another important part of ULIPs, i.e., the benefits. Some of the best ulip benefits are listed below:
Freedom to Choose Life Cover - The policyholders can choose the quantum of life cover as per their requirements. In most of the ULIPs, the minimum sum insured is often 10 times the yearly premium amount. Although, you can increase the minimum sum insured to as much as 40 times or higher, depending on the terms of the policy as mentioned by the insurer.
The benefit of Market Linked Returns - Compared to other insurance plans where the returns are fixed and predetermined, ULIP plans offer a chance to earn better returns. Despite being an insurance cum investment plan, the risk cover is assured and is also not affected by any adverse market conditions.
Flexibility to Choose Investment Type - ULIP plans offer its investors the opportunity to select from a wide range of investment plans as per their risk appetite and investment goals.
Availability of Liquidity - ULIP plans provide the benefit of partial withdrawal after a certain period of remaining invested in the plan which allows you to take care of emergency financial requirements like funding your child's education, unavoidable medical emergency, or any other urgent and expenses.
Premium Top-up Facility - ULIP plans offer its policyholder the benefit of the top-up facility on premium, which helps them to invest over and above their regular premium.
Ideal for Goal-Based Investing - ULIPs are best suited for securing long-term goals like a child's education or marriage, retirement, purchasing a new house, and various other important life goals. By investing in ULIP, one gets the benefit of compounding, which eventually results in higher net returns. Staying invested for the whole policy duration helps an investor beat the short-term market fluctuations, along with the advantage of risk-coverage.
Transparency - ULIP plans offer greater transparency compared to any other traditional insurance and investment policy. With ULIP plans, the insurance company shares the information on various fees and charges levied under different types of funds and how they are going to affect the returns. This allows the investor to make well-informed decisions about investing.
Tax Benefit on Maturity - The entire maturity proceeds from ULIP plans are tax-free under Section 10(10D) of the Income Tax Act, 1961. The yearly premium amount should be equal to, or less than 10% of the sum assured to be eligible to avail of such tax benefit. Furthermore, ULIP plans are exempted from the purview of LTCG and are also the only market-linked investment scheme that avails of this benefit.
Now that you now know the benefits and how it works, you must also be wondering which are the best ULIP plans in India 2020 so that you can invest in a good plan.
Below are the top 5 ULIP Plans:
| ULIP Plans | Entry Age | Minimum Premium | Premium Allocation Charge | Policy Admin Charge | Free switches (Annual) |
|---|---|---|---|---|---|
| Bajaj Allianz Future Gain | 1 to 60 years | ₹25,000 | 0% to 1.5% | ₹33.33 p.m. | Unlimited |
| PNB Metlife Smart Platinum | 7 to 70 years | ₹30,000 |
|
Rs. 35 (Yearly) Rs. 40 (All other modes) | 4 |
| MAX Life Fast Track Growth Fund | Three months – 60 years | Rs. 25, 000 – Rs. 1 lakh |
|
0.05% p.m. of Single Premium & 3% per annum from second year.Five Pay and Regular Pay - Annual mode: - 0.33% p.m. compounding at 4% p.a. from second year onwards up to a maximum of Rs.500 per month5 Pay and Regular pay- Non-Annual modes: - 0.24% p.m. compounding at 4% per annum from second year onwards up to a maximum of 500 per month | 12 |
| SBI Life Wealth Assure | 8 – 60 years | ₹50,000 | 3% of Single Premium | Rs 45p.m. for the first five yrs | 2 |
| HDFC Life Pro Growth Plus | 14 to 65 years | Rs 24,000 – 1,00,000 | Premium due in Year – 1 – 2.5% 2 – 2%3 and following years – 0% |
|
NA |
*Disclaimer: The above data has been sourced from the Insurance Company's Website. (last updated 12-11-2020)
In short,
ULIP plans can be an ideal option to invest in. It comes with enormous useful benefits and has an easy investment process. For more details about the ULIP plans and how to invest, you can log onto www.coverfox.com. Coverfox comes with all the important information on investment plans and insurance policies.