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What is ULIP

Know About What is ULIP, ULIP Full Form and how they work for you

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What is ULIP Plan? 

ULIP full form is Unit Linked Insurance Plan, which is a multi-faceted life insurance product. A ULIP plan is a combination of life insurance and investment. ULIPs requires you (as a policyholder) to make regular premium payments, part of which is utilised to provide life insurance coverage. The remaining is pooled with the assets received from other policyholders, and then invested in financial instruments (i.e. equity and debt), similar to mutual funds. Investment in ULIP means you can stay financially secure against emergencies and grow your money as well.

Let’s know more about what is ULIP plan and how to invest in them.

What is ULIP Max Life Insurance

What is ULIP Max Life Insurance

ULIP Plan: Benefits You Should Know 

Wondering what is ULIP plan benefits? ULIP means an opportunity to invest in various market-related securities such as equity, debt, and balanced funds to receive long-term investment returns. ULIP full form is Unit Linked Insurance Plans, which means your investments in funds are subject to market fluctuations. So, you can choose to invest in a variety of fund options with ULIP plan, depending upon your risk appetite and investment objectives.

You can also use a ULIP calculator to get an estimate of the premium payable towards the plan and the expected returns – something that will help you better understand 'what is ULIP plan' and its various advantages. Here are some other benefits of ULIP plans –

1. Market Linked Returns 

ULIP means an opportunity to avail of earn market-linked returns by allocating a portion of the premium invested into market-linked instruments such as debt and equity instruments (in varying proportions). 

2.Life Protection with Savings

Besides allocating a portion of the premium invested into market-linked instruments, Unit linked Insurance Plans (ULIP full form) also help protect you and your loved ones against any emergencies in life.

Thus you can avail of market-linked returns, while the ULIP plan takes care of your protection needs.

With the need of protection against life's eventualities out of the way, you can develop a regular habit of saving and investing and build substantial wealth over the long term with ULIP plans.

What is ULIP Max Life Insurance

2.Life Protection with Savings

Besides allocating a portion of the premium invested into market-linked instruments, Unit linked Insurance Plans (ULIP full form) also help protect you and your loved ones against any emergencies in life.

Thus you can avail of market-linked returns, while the ULIP plan takes care of your protection needs.

With the need of protection against life's eventualities out of the way, you can develop a regular habit of saving and investing and build substantial wealth over the long term with ULIP plans.

What is ULIP Max Life Insurance

3. Flexibility

ULIP or Unit Linked Insurance Plans (ULIP full form) help you achieve your financial objectives by providing the flexibility to –

  • Switch between investment funds based on your changing needs
  • Make partial withdrawals after the completion of the initial 5-year lock-in period
  • Single premium additions to help you invest additional sums of money (alongside the regular premium paid) as and when desired.  

4. Level Paying Premiums  

Under a ULIP plan, all regular premium or limited-term premium payments shall have a uniform or level premium payment structure. Any additional payments of premium are treated as a single premium, to provide life insurance cover.

5. Even Distribution of Charges 

According to IRDAI, the charges levied on ULIP plans are evenly distributed during the 5-year lock-in period, to help ensure that the insurers eliminate the high front-ending of expenses. Make sure you understand what is ULIP plan charges that you will be paying, before investing your money. 

6. Tax Benefits

The premium paid towards the ULIP plans is eligible for tax deduction under Section 80C of income tax 1961, up to a maximum of Rs. 1.5 lakh. At the same time, the maturity/death benefit received under the ULIP plan is tax-exempt under Section 10(10D) of the Income Tax Act 1961.

What is ULIP Max Life Insurance

5. Even Distribution of Charges 

According to IRDAI, the charges levied on ULIP plans are evenly distributed during the 5-year lock-in period, to help ensure that the insurers eliminate the high front-ending of expenses. Make sure you understand what is ULIP plan charges that you will be paying, before investing your money. 

6. Tax Benefits

The premium paid towards the ULIP plans is eligible for tax deduction under Section 80C of income tax 1961, up to a maximum of Rs. 1.5 lakh. At the same time, the maturity/death benefit received under the ULIP plan is tax-exempt under Section 10(10D) of the Income Tax Act 1961.

What is ULIP Max Life Insurance

How to Choose the Best ULIP Plan? 

Once you understand what is ULIP plan, the next step is to choose the best-suited policy for you since there is a variety of options available. So, before you invest in a ULIP plan, you must consider comparing and evaluating to choose the best ULIP plan available in India. Following are some of the key points to keep in mind while choosing the best ULIP plan:

  • Evaluate Your Goals
  • Choose the Right Life Insurance Cover Amount
  • Stay Invested for an Extended Investment Tenure
  • Avail Maximum Tax Benefits u/s 80C & 10 (10D)

Max Life Insurance offers ULIP plans that are designed to meet the requirements of diverse financial profiles. Find out more about Max Life Online Savings Plan, Max Life Fast Track Super and more to start planning your future efficiently. 

Which Investor Class Are ULIPs Most Suited For? 

1. Individuals who want to track their investments closely

A ULIP plan allows you (as the policyholder) to closely monitor your portfolio. Such individuals may also benefit from the switching flexibility offered by ULIP plans, thorough which they can adjust capital allocation between funds options with varying risk-return profiles. ULIP means more control over your financial planning, including investment and insurance decisions. 

2. Individuals with a Medium to Extended Investment Horizon

ULIP plan is ideal for you if you are willing to stay invested for relatively long periods.

3. Individuals with Varying Risk Profiles 

ULIP plans offer a variety of funds options – each with varying risk-return profiles. Thus, investors with different risk profiles (from risk-averse investors to those with healthy risk appetite) must understand what is ULIP plan funds available before investing, so they can keep appropriate return expectations. 

4. Investors across All Stages of Life 

Different types of ULIP plans are available to help you protect yourself and your loved ones against financial needs and liabilities at specific points in time.

Fund Option Under ULIPs 

Some of the most common investment options available under ULIP plans are –

a) Equity Funds 

In an equity fund of ULIP plans, the allocated investment amount is used to purchase stocks, which have a Net Asset Value (or NAV) associated with them. NAV is the price per share (or 'unit') in a Fund. As the ULIP full form suggests, ULIP plan is a market-linked instrument, so the investments in equity carry high inherent risk because of market fluctuations. However, equity investments can also be the most rewarding. 

b) Debt Funds

The premium allocated towards debt funds is used to invest in instruments such as Government Bonds, and debentures, which offer a lower risk than equity investments. Compared to equity investments in ULIP plans, however, debt funds may offer a lower return on investment.

c) Hybrid or Balanced Funds 

Under ULIP plans, Hybrid or Balanced Funds are designed to provide capital growth (from the equity component) while ensuring lower risk (due to the debt component.)  In case of market fluctuations, thus, any loss that you incur from the equity portion is balanced out by the lower risk yet consistent returns from the fund's debt portion.

Understanding what is ULIP plan and your investment objectives carefully will allow you to make sound choices.  

Below table enumerates the various aspects of the ULIP plan fund options –

General Description  

Nature of Investments

Risk Category  

Equity Funds  

Primary investments include company stocks that focus on capital appreciation 

High 

Debt Funds

Investments include government securities, corporate bonds, and other fixed-income instruments

Low

Balanced/Hybrid Funds  

Investments combine equity component with fixed interest instruments 

Medium 

 

What is ULIP Calculator?

Now that you know what is ULIP plan and how it works, it is crucial to make appropriate estimations of your investment. A ULIP Calculator can help you to compare and evaluate before buying a ULIP plan in India. A ULIP Calculator is a tool which assists in calculating the maturity amount on the basis of the expected future investment value and returns under the ULIP policy. To calculate your possible returns from ULIP plan, you just need to provide your details, investment amount (exclusive GST), payment frequency, premium payment term and investment period. The calculator will provide the returns and life insurance cover amount.

How Does ULIPs Work? 

In a ULIP (ULIP full form – Unit Linked Insurance Plan), the premium amount that you pay is allocated to the funds chosen by you, after the insurance company has deducted certain charges, including –

1) Fund allocation charges

2) Policy administration charges

3) Fund management charges

4) Mortality Charges

As a long-term financial plan, ULIP means providing ample wealth creation opportunities. On the other hand, the ULIP's meaning, as a life insurance product, is to provide more diversified returns in the form of life insurance protection.

The investments under ULIP plans are managed by dedicated fund managers, appointed by the insurance company. Thus, there is no need to track the investments on your own. If you want, you can track the performance of the individual ULIP plan fund options and switch between funds (without incurring any additional costs) to maximise the profit and deal with market volatility.

What is ULIP Max Life Insurance

In a ULIP (ULIP full form – Unit Linked Insurance Plan), the premium amount that you pay is allocated to the funds chosen by you, after the insurance company has deducted certain charges, including –

1) Fund allocation charges

2) Policy administration charges

3) Fund management charges

4) Mortality Charges

As a long-term financial plan, ULIP means providing ample wealth creation opportunities. On the other hand, the ULIP's meaning, as a life insurance product, is to provide more diversified returns in the form of life insurance protection.

The investments under ULIP plans are managed by dedicated fund managers, appointed by the insurance company. Thus, there is no need to track the investments on your own. If you want, you can track the performance of the individual ULIP plan fund options and switch between funds (without incurring any additional costs) to maximise the profit and deal with market volatility.

What is ULIP Max Life Insurance

How Is ULIP Plan Structured?

The investment options under ULIP plan or Unit Linked Investment Plan are structured similar to those of mutual funds.

ULIP plans pool investments from different investors before they are allocated to different fund options based on individual preferences.

The assets under ULIP plans are managed by dedicated fund managers, whose focus is towards accomplishing specified investment objectives. As an investor, you can buy shares or 'units' in a single strategy or choose to diversify your investments across several market-linked ULIP funds.

When you choose to buy into a ULIP fund, you must first commit an initial lump sum payment. Subsequently, you have to make premium payments towards the plan – annual, semi-annual, or monthly. The premium payment obligation varies from one ULIP plan to another, as evident through the estimates made through the ULIP calculator. The premium invested in a ULIP plan is proportionally invested towards a specified investment mandate.

However, ULIP means flexibility to investors, allowing them to choose to adjust their fund preferences, depending upon their needs, throughout the investment duration.

Frequently Asked Questions (FAQs)

Q. What is ULIP and How does ULIP Plan Work?

A. ULIP full form is Unit Linked Insurance Plan, which is a type of life insurance solution, offered by insurance companies. These plans provide the combined benefits of life cover protection and investment returns.

ULIP plan provides capital market-linked returns on your investment, by allowing you to invest into a variety of equity and debt fund options.

Q. What should You Keep in Mind While Investing in ULIP? 

A.  While investing in ULIP plans, you must keep the following factors in mind –

  • Applicable charges including surrender charges (those payable on premature surrender of ULIP plan)
  • Investment fund options available
  • Features and benefits
  • Limitations and exclusions
  • Consequences of ULIP plan lapsing
  • Other disclosures

Q. How much of the premium paid is used to purchase units?  

A. The entire amount invested under a ULIP plan is not allocated towards buying units. Instead, the insurance company allows the purchase of units only on the portion of the premium remaining once they have deducted the different fees and charges. The quantum of the capital amount received as premium and used to purchase units varies from one ULIP to another.

Overall, ULIP means that the cumulative monetary value of all the units purchased is invariably less than the total amount of premium received, because a portion of the capital is also allocated towards the life insurance coverage component.

Q. Can I seek a refund of premiums if I'm not satisfied with the ULIP policy, after purchasing it? 

A. As a policyholder, you can request a refund of the amount of premium paid within the free-look period, if you disagree with the policy's terms and conditions. In general, there is a 15-day free-look period, which starts once you receive the policy document. On opting for free-look cancellation you will receive the fund value, including charges levied via cancellation of units. The cancellation of units is subject to deduction of expenses towards stamp duty, medical examination, and proportionate risk premium for the coverage period.

Q. What is ULIP plan NAV? 

A. ULIP plan NAV (or Net Asset Value) is defined as the total value of the units holding, after deducting the value of its liabilities. In other words, NAV is calculated after deducting liabilities such as management fees, marketing expenses, and operating expenses.

Q. When should I invest in ULIPs?

Individuals with a long-term financial plan for wealth growth and insurance should consider ULIP plans. However, there is no single right age to invest in ULIP. ULIP means you can grow your money and keep your family secure against emergencies so, whether you are planning for retirement, children's education, and other financial goals, it can be beneficial. 

Q. What can help me in maximizing my ULIP returns?

If you understand what is ULIP plan, you are aware of the market-linked return generations, therefore maximizing the returns depend on you risk-appetite and investment goals as an investor. Largely, you can keep a track of the market fluctuations and switch funds accordingly to optimize the ULIP plan benefits.  

Q. How to calculate fund value in ULIP?

The fund value of ULIP plan refers to the overall monetary value of the policyholder's units. The fund value on a given day can be calculated by multiplying the net asset value of each unit on that day by the number of units held.

Q. What is lock in period in ULIP?

Unit-linked insurance plans have a five-year lock-in period, during which the plan holder is unable to withdraw or liquidate the fund's assets. So, investing in ULIP means preparing for long-term financial goals.

Q. Will I have to pay tax on ULIP maturity amount?

As per the Budget 2021, ULIP plans with annual premiums exceeding Rs 2.5 lakh are not eligible for tax free maturity proceeds. 

ARN No: Oct21/Bg/05A

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