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Here’s Your Complete guide to ULIPs

Oct 30, 2019 | 3 months ago | Read Time: 3 minutes | By iKnowledge Team

There are three primary goals that people are most focused on achieving in their financial planning. The first is to secure the future of their loved ones, the second is to ensure that their children are educated, and the third is to generate returns over the money they make. What if you could accomplish all three of these financial milestones through a single investment vehicle?

Unit-linked insurance plans (ULIPs) are a hybrid investment tool that investors today believe is the best of both worlds. ULIP is a combination of insurance and investment. You can choose to pay the premium in a single lump sum, monthly, or even annually, based on the policy you are considering. The premium you pay is divided into two parts, where one half goes to secure life insurance and the other half of your premium is invested just the same way as a mutual fund. Constantly investing over the timespan of your policy – 5, 10 or 15 years allows you to accumulate units. ULIP offers investors options that invest in equity and debt. If your risk accommodation is high, then you may pick equity-oriented fund options, whereas a conservative risk appetite, gives you the debt option to choose from. Let’s take a deeper look at the distinct features of a ULIP plan.

The Funds

The first feature of a ULIP is the type of funds that you can choose from in order to accommodate into your investment planning. Insurance companies like Aegon Life offer 3 distinct types of funds to choose from:

  • Equity Funds: Equity funds invest primarily in the equity stock market, where market volatility risk is high, and the investment strategy is aggressive. Equity investments, however, have an equally high potential of generating returns.
  • Debt Funds: Debt funds, on the other hand, are low risk investment arenas like the debt and bond market, where you can follow a conservative investment strategy. As is the rule of the market, low risk equals low returns.
  • Balanced Funds: Balanced funds, as the name implies, are a mix of equity and debt funds. These funds are meant for investors who’d like to generate high returns for a controlled amount of risk. This means that the returns expected are higher than debt funds but lower than equity funds.

The Life Cover

Since ULIPs are meant to be insurance plans primarily, insurance cover is available and deducted as a percentage or multiple of the premium paid. In case of your unfortunate demise before the policy matures, the higher of either the sum assured, or the fund value of the units is paid to your benefactors. This means that the life cover as promised under the ULIP policy is guaranteed to be payable on death.

  • Charges: Most insurance companies have certain charges levied on the premiums you pay on the ULIP plan. These charges include the premium allocation charges, administration charges, fund management charges, mortality charges, etc.
  • Switching: ULIPS give you the flexibility to switch between funds, based on your investment planning strategy. If your investment strategy changes during the plan’s tenure, then you may change from one investment fund to another through the switching facility which is free of cost up to a specified extent in one policy year.
  • Partial withdrawals: What makes ULIPs unique and sets itself apart from other insurance plans is the facility of partial withdrawal. In ULIPs, you can withdraw the returns generated from your units partially, if you need financial assistance, without hampering the plan’s continuity. However, most ULIPs come with a 5-year lock-in period after which you can withdraw. What’s more, a limited number of withdrawals are also free of charges.
  • Top-ups: ULIPs are flexible enough to accommodate the facility of making additional investments in the market, through the plan, using top-up premiums. This means that you can use your surplus fund for investment in the plan apart from the premiums to benefits from good returns. This feature might be the best of features in a ULIP policy, since the premiums paid, and benefits received, are eligible for tax benefits under Section 80C of the Income Tax Act, 1961. To know about Aegon Life’s  life insurance products like term insurance and other products, visit our home page.

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