Unit Linked Investment Plan or as commonly known as ULIPs are essentially a life insurance product where both, a life cover and investment option is provided. Some of the kinds of ULIPs available are:
- Retirement ULIPs: If your aim is to plan for your retirement using an ULIP, you make the payments during your working years. This money is consolidated and paid out as annuities to the investor on retirement.
- Wealth Creation ULIPs: If you are a young investor and looking to build a corpus for your financial needs in the future, wealth creation ULIPs are the best options.
- Children Education ULIPs: Along with securing your child’s needs in case of an unfortunate event through a life cover, certain ULIPs pay out small ‘pockets’ of money in each significant milestone of your child’s future.
- Health Benefit ULIPs: These ULIPs provide medical assistance, financially at the time of need.
What is meant by a unit?
The premium amount paid is partially allocated for life insurance and partially invested in funds preferred by the investors forming a unit fund comprising of several ‘units’ proportionate to the amount invested.
What are the various funds for investment in a ULIP?
The investor bears the risk of investment in a ULIP and the various funds available for the investor to choose from are equity funds, income, fixed interest or bond funds, Cash Funds and Hybrid funds.
Are returns on an investment in ULIP guaranteed?
No. The investment returns in ULIP depends on the performance of the fund. Depending upon the fund chosen by the investor, the investor takes full responsibility for the gains or losses.
What are the various charges in a ULIP?
The charge, deduction and fee structure is different for different insurers and can be subject to change. Following are the charges, fees and deductions in general:
Allocation of Premium charges
Fees to manage funds
Charges for policy or Administration charges
Charges on surrender of policy
Switching of fund charges
Deductions for Service tax.
What component of a premium is used to buy units?
The amount paid as the premium by the insurer is partially invested for life cover and partially on funds. The insurer deducts the fees and charges and the remaining amount of premium is invested to buy units. Hence, the amount of premium paid with an intention to invest in funds will be lower than the consolidated amount of funds since the charges and deductions are already exercised on them.
Can premiums be refunded if one is dissatisfied with the plan?
Yes. The investor can seek a refund of the premium amount paid. The amount which will be received by the investor after cancellation will be after the deduction of charges, expenses on medical verification, stamp duty and the proportionate premium for risk during the cover duration.
Is it possible to switch funds in ULIP?
Yes. One of the unique features of ULIP is the SWITCH facility where one can switch between funds provided the facility is existent with the product. Most insurers offer the switch without any deductions several times a year. However, charges may be levied if the number of switches exceeds a set limit.
Which ULIP Plan Is The Best For You?
If you are confused on which insurer to choose for ULIP, here are few tips to assist you to select the best one:
- Flexibility: Insurance needs are dynamic and keep changing with your evolving needs- income, age and dependents. Thus, the life cover part of the ULIP should not be overlooked. Despite the regulator capping a minimum cover for life, the maximum limit is not set. Thus look for a ULIP which offers customizability. You can utilize the flexibility to determine the premium payment frequency, add riders and invest in funds of your choice depending on your risk profile.
- Compare: Check the fund’s performance before investing in one since there could be significant differences at maturity and the payout is done on the market performance of the fund. Also, check for various plans in aggregator websites to get a cheaper quote.
- Settlement of Claims: Like most other life insurance plans, it is wise to take a look at the claims settlement ratio of the insurer before investing.
- Transparency: The IRDA has made it obligatory for the insurers to disclose certain information to the investors to help them make an informed decision. However, many insurers do not comply with the same. Thus, ensure you choose an insurer with higher credibility and transparency to allow you to make switches and redirections wisely.
Which Company Offers The Best ULIP Plan?
Following ULIP plans are the best available from various insurers:
- Bajaj Allianz Future Gain
- PNB MetlifeSmart Platinum
- MAX Life Fast Track Growth Fund
- SBI Life Wealth Assure
- ICICI Pru Wealth Builder II
In addition to various features available with ULIP, it allows partial withdrawal of the corpus at the time of need. The insurers are bound by regulators to disclose the analysis of the fund performance, the fund’s investment portfolio and the risk control measures used among various others.