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Unit Linked Insurance Plan is a unique financial product that offers dual benefits of life cover and the opportunity to grow your savings in the long run. However, since many people prefer buying a life insurance policy separately and investing in different instruments to suit their risk profile and financial goals, they have several doubts about ULIPs.
In this write-up, we discuss the most frequently asked questions about ULIP.
Do ULIPs offer guaranteed returns?
No. Since ULIP is a market-linked product, there are no guaranteed returns. A part of the premium you pay for the ULIP policy is invested in different money market instruments, and the returns depend on the funds’ performance and market movements.
However, if you stay invested in ULIP for a long time, say ten years or more, you have better chances of getting valuable returns with compounding interest coming into the picture. Historically, ULIPs have offered returns in the range of 10% to 12% over an investment period of 10-15 years.
What are the charges associated with ULIP?
When you invest in ULIP, there are certain charges that you must bear. Some of the standard charges are:
Administration charges – The insurance companies usually levy this charge every month towards the administration of your policy. The costs are deducted at a specific percentage of the annual premium or by deducting the funds’ units.
Fund management charges – Generally, insurance companies deduct fund management charges as a percentage of the fund’s value before the fund reaches its NAV (net asset value). You pay these fees to avail the services of the fund managers.
Mortality charges – The insurance companies levy this charge based on the sum assured of your policy and age.
Apart from the abovementioned charges, some of the other costs you may have to pay to include fund switching charges, surrender charges, premium allocation charges, etc.
Does ULIP have a lock-in period?
Yes, ULIPs have a lock-in period of five years from the date of policy’s commencement date. You cannot withdraw the funds from your accumulated corpus during the lock-in period. However, you can partially withdraw funds from your account at the end of the lock-in period.
Are ULIPs an ideal investment option for long-term goals?
Yes, ULIPs, by design, are long-term financial products, which makes them an ideal investment choice for long-term goals. Compared to other life insurance products with investment options, ULIPs offer the highest returns.
The longer you stay invested in ULIP, the better your chances of getting valuable returns. Since ULIPs give you exposure to the equity market, you can expect better returns than other life insurance policies over the longer term and build a sizeable corpus.
Historically, ULIPs have offered returns in the range of 10-12% over an investment period of 15 years or more.
Can we get tax benefits by investing in ULIP plans?
Yes, ULIPs are one of the most popular tax-saving investment options. The premium you pay for ULIP plans is eligible for tax benefit under Section 80C of the Indian Income Tax Act. Additionally, the death benefits your family may receive are fully tax-exempt under Section 10(10D) of the IT Act.
Final Word
When you research about ULIP, you may feel overwhelmed by the abundance of information available online. However, you must know about the important aspects of the insurance plan you wish to purchase before making the final decision. Almost all the major insurance companies have a separate FAQs section on their website, you can refer to it to get the specific information you are looking for and be better informed.
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