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5 important facts you must know about ULIPs

5 important facts you must know about ULIPs

ULIPs are a godsend in a volatile economy. We present 5 key facts to be aware of when investing in these policies.

In recent years, the Unit Linked Insurance Plans (ULIPs) have gained prominence owing to their risk mitigation and high propensity for returns. If you are mulling over the idea of buying a ULIP, you must be cognisant of the following facts:

#1 It is an investment-cum-insurance instrument.

The ULIP is a life insurance policy that also promises guaranteed returns on the money you invest in it every year. The money you pay towards premiums is split into two components: One component is paid towards the premium, and the other is used to buy units of high grade shares. The unit linked insurance plan shows excellent returns over a longer tenure (10 years or more). You may choose to reinvest in the unit linked plan on maturity, and you may partially withdraw against it after a few years.

#2 You can track the progress of your investment by yourself.

The unit linked insurance plan certainly offers guaranteed returns, and it also lets you track its daily progress. The insurance provider’s website has the day’s NAV (Net Asset Values) displayed on the home page. All you have to do is check the day’s NAV for your ULIP, and multiply it with the number of units allotted to you to know the day’s growth or decline over the previous day. Thus, you can chart the ULIP’s progress over a period of time. If you are not happy with its progress, you can opt for different units in consultation with the plan provider.

#3 There are a few charges associated with the ULIP.

When you buy a unit linked plan, a few charges are deducted from the premium payment and the remaining is invested. There are 4 main charges associated with the ULIP:

– Premium allocation charges (charged upfront and also include annual renewal fees)

– Mortality charges (fees charged by the insurer to issue the ULIP)

– Management charges (to monitor the fund, deducted from the NAV)

– Surrender charges (to be paid by you if you surrender the ULIP before maturity. Surrender is normally not allowed till 5 years from the date of buying the ULIP).

#4 There are 3 main benefits ingrained in the ULIP.

As an investor holding a unit linked insurance plan, you are liable to receive three main benefits:

– Maturity benefit: The fund value is paid to the policy holder in case they survive the policy tenure.

– Death benefit: The sum assured or fund value is paid to the deceased policy holder’s nominated family members.

– Tax benefit: Premiums paid for ULIPs are exempt up to Rs 1.5 lakh per year under Sec 80C of the Income Tax Act, 1961. 

#5 You may surrender the ULIP subject to certain conditions.

The unit linked planmight seem like a great investment option, but you may wish to discontinue it in the future. You can surrenderthe ULIP within the look-in period specified by the insurer, or after the lock-in period. In both cases, you must pay a surrender fee and you might receive the paid premiums after the allocation charges are deducted. So it is better to continue the ULIP instead of surrendering it mid-way.