#ULIP |

Why ULIPs are ideal for your long-term goals?

What is a Unit Linked Insurance Plan, commonly called a ULIP?

To put it simply, these plans invest in market-linked instruments via different types of Funds. Investment in any Fund is made by buying units. This is something akin to petrol bought in litres, potatoes bought in kilograms and so on.

Your Fund Value, at any point in time, is calculated by multiplying the number of units bought, into the price of each unit. The price of each unit is called NAV (Net Asset Value) and it changes as per market conditions. Since the value of your investments is linked to the number of units and the price of each unit, hence the name - Unit Linked. And because of the life cover component, it is an Insurance Plan. Combined it becomes a Unit Linked Insurance Plan or ULIP.

So, today we will demystify ULIPs for you and explain what makes it an ideal financial product to help you achieve your long-term goals:

- Insurance + Investment: The primary and defining feature of a ULIP is that it caters to the two most important aspects of financial planning – financial security and regular investment. So, when you buy a ULIP, you get life insurance to keep your loved ones financially secure always, the discipline to save regularly towards your long-term goals, and the avenue to grow your savings.

- Flexibility to align the plan as per capacity and needs: When buying a ULIP, you need to specify the annual premium, the premium payment term, and the policy duration. The annual premium is the amount that you wish to invest in the plan, each year. This amount, after deduction of applicable charges, is invested in funds as specified by you. The premium payment term (PPT) is the number of years for which you would like to pay premiums. And the policy duration is the number of years for which your money will stay invested. With the flexibility to choose your annual premium, premium payment term and policy term, you can align the plan to your needs, priorities and goals.

- Discipline to stay invested: Just as ‘Rome was not built in a day’, wealth cannot be created in a day either. Hence, ULIP plans come with a lock-in period of 5 years, that is, you cannot withdraw money from your ULIP policy before completion of 5 policy years. This is because ULIP plans invest in market-linked debt and equity instruments which can be volatile in the short-term but are capable of delivering healthy returns over the long-term. Also, the lock-in discourages the policyholder to dip into this investment kitty and ruin long-term wealth creation plans. However, after the first 5 policy years, you can make partial withdrawals subject to conditions specified by the life insurance company.

- Options to create wealth, and flexibility to navigate investments: ULIP plans offer a range of investment options, in the form of funds options, to suit different risk-return appetites. Different ULIP plans have different fund offerings which are usually a mix of equity funds, debt funds, balanced funds and liquid funds. The policyholder can choose any mix of funds available and define the investment proportion for each. For example, the policyholder may choose an equity fund, a balanced fund and a debt fund; and define the investment proportion as 50% in equity fund, 30% in balanced fund and 20% in debt fund. Accordingly, the premium paid, minus applicable charges and deductions, is invested across the 3 funds, in the proportion specified. The policyholder can also revise his investment strategy at any point in time to suit changing needs, preferences or economy. Continuing with the above example, the policyholder may decide to do away with the debt fund and continue investment in Equity and Balanced funds in a revised proportion of 60% and 40% respectively. This flexibility to navigate investments, without incurring any additional expenses or without the need to exit the scheme / plan, gives ULIP an edge over other investment avenues.

- Choice of different investment management options: ULIPs give policyholders the option to self-manage their investments; or opt for the company’s ‘programmed investment strategies’ that auto-manage investments as per a pre-defined strategy that has been devised to optimize returns for the customer.

- Tax benefits: Not many are aware that the premium paid towards a ULIP, and the returns from the plan are eligible for tax deduction. However, there are conditions applicable to availing these tax benefits. As tax laws keep getting revised from time to time, we will avoid presenting tax benefit-related details here. We request you to consult your tax advisor for details on this matter.

The above benefits make ULIPs an ideal investment choice to help you achieve your dreams while financially securing yourself and your loved ones.