Your ULIP Questions Answered: What You Need to Know!

Unit Linked Insurance Plans, ULIPs still puzzle you? These plans have been gaining popularity as a blend of investment and insurance. In this blog, we will be lining up some of the most frequently asked questions related to ULIPs.

You will learn the

• Fundamentals of ULIPs
• Concept of Net Asset Values or NAVs
• Worth of your investment

Well, there’s more to it. Check out the following blog and tap into the world of ULIPs.

ULIPs: Where Insurance meets Investment, these plans offer dual benefits—financial security and wealth growth. ULIPs are undoubtedly a smart choice for a secure and prosperous future.

Q1. What is NAV in ULIP?

Net Asset Value plays a crucial role in ULIP. Essentially, it signifies the value of each unit of your ULIP investment. Think of it as the price per unit. This metric guides the performance assessment and sets buying and selling prices for these investment units. In essence, NAVs are a fundamental indicator in the world of ULIPs

Q2. What is the concept of lock- in period?

It is a tenure set by IRDAI (Insurance Regulatory and Development Authority of India), which says you must invest your funds for at least five years. In the initial five years of your investment, you cannot withdraw your money, and even if you want to cancel your ULIP plan, your invested money will be returned after five years.

Q3. What are the various charges involved in ULIP plans?

• A premium allocation fee for policy handling, including underwriting and medical expenses.
• Mortality costs linked to your life coverage.
• Fund management fees before NAV calculation.
• Surrender charges if the policy is cashed before five years.
• Policy administration expenses for management.
• Switching charges for Switching of funds. Limited number of switches are free and post that switches are chargeable.

Q4. What is the difference between ULIP and mutual fund?

The primary distinction lies within these financial instruments: ULIPs function as insurance products, while mutual funds operate as investment vehicles. ULIPs entail a mandatory 5-year lock-in period, whereas mutual funds permit withdrawal at any juncture. Tax liability pertains to gains resulting from fund switches within the domain of mutual funds, an aspect not applicable to ULIP arrangements.

Q5. What is the maturity benefit on ULIP?

A maturity benefit is the amount you receive when your policy ends. The amount paid depends on how well your chosen investment funds perform.

Q6. Can I know how my funds are performing in the ULIP plan?

As the policyholder of the plan, you have the right to know how your funds are performing and whether they align with your future goals.

Q7. What are the tax benefits offered in the ULIP plan?

Premiums paid on ULIPs are deductible against taxable income under Section 80C up to a limit of Rs 150,000*. Furthermore, the amount received on maturity is tax-free under Section 10(10D) of the Income Tax Act**.

Q8. What are the factors I need to consider as an investor?

Here are the factors you need to consider as an investor,

• Personal Financial Goals:If your goal is wealth accumulation along with life cover, it may be a good option. But, if your primary goal is a death benefit, a term plan may serve you better.
• Investing Time: ULIPs have a 5-year mandatory lock-in period, but only some people want to wait that long for returns. Hence, mutual funds may serve you better in such cases.
• Risk Appetite: ULIPs are market-linked, which means there is risk involved. For someone looking for consistent and stable gains, there are better options than ULIPs.
• Other ULIP Options: It is essential to look out for other options in the market, compare and analyze them, and see what will work for you the best.

Conclusion

The answers to the commonly asked questions mentioned above are the key to unlocking the benefits of Unit-Linked Insurance Plans. Always remember that ULIPs have the power to offer unmatched financial benefits in the long run.

Remember, reviewing your policy, seeking expert advice, and staying informed will gaurantee that your chosen ULIP meets your unique needs.

Sources

*Deductions allowable to tax payer (incometaxindia.gov.in)
**Microsoft Word - ULIP Guidlines Approved.docx (incometaxindia.gov.in)