Unit Linked Insurance Plans (ULIPs) are hybrid plans that allow people to deploy funds for life insurance and long-term capital market investments. The premium paid for a ULIP plan is divided into two parts: the minor component is designated to provide the policyholder with life insurance coverage, while the more significant portion is put aside for investment.
The insurer combines the premiums paid by several policyholders into a single huge fund. According to the policyholders’ interests, insurers invest this money in stocks, debt funds, or an appropriate mix of both.
The insurer splits the whole amount into multiple units, each with a different value. The quantity of units a person receives is determined by the premium paid. This policy’s returns are determined by the market performance of the funds invested.
How Does a ULIP work?
Before you begin investing, you need to have a fundamental grasp of ULIP plans. Let us walk you through how it works.
When you pay the premium for a plan, a portion of it is utilised to provide life insurance, while the remainder is invested. The premium is put in the fund of your choosing. You may choose from various investment funds with differing risk levels offered by the insurer (insurance firm), including equities, debt, balanced funds, and hybrid funds.
The insurer assigns ‘Units’ to each investor in proportion to the amount invested. This figure is known as the ‘NAV,’ or Net Asset Value. But who is in charge of the entire fund? On the other hand, fund managers maintain track of the monies that are invested. The unit NAV may grow or fall based on market performance.
Features Of Unit-Linked Insurance Plans (ULIPs)
The following are the features of a ULIP plan explained in brief:
Selection Of Investment
A ULIP plan allows you to pick your investment channels based on your risk tolerance. Investing in stock funds entails a high level of risk, whilst investing in debt funds is more cautious.
Depending on the investor’s risk tolerance, they may invest in either stocks or debt funds or enjoy the best of both worlds by investing in balanced funds.
Lock-in Period
The monies invested in the ULIP plans are locked in for a mandatory 5-year term. During this time, the policyholder is not permitted to withdraw any monies from the funds. During this time, he can also not swap or renounce the money.
Fund Switch
If the performance of your chosen funds isn’t sufficient, or if you expect a change in market circumstances in the future, you may always transfer from one kind of fund to another within the same plan.
As a result, you may invest in debt funds during market downturns and equity funds during market upswings. This fund move is available after a 5-year lock-in term.
Partial Withdrawal
After the 5-year lock-in period, you may withdraw cash in part to cover any financial difficulties. The insurance company determines the number of withdrawals and the time between each withdrawal.
Top-Ups
In addition to the standard payment, a surplus amount may be invested to purchase more units and create large profits.
Mode Of Payment
A policyholder may choose a premium payment option that is convenient for him or her, such as annually, half-yearly, quarterly, or monthly.
Charges
The policyholder is charged in various ways by ULIP plans, including Fund Management Charges, Administration Charges, Switch Charges, Rider Charges, and so on.
Best ULIP Plans in India
Here are the best ULIP plans available in India:
1. Canara HSBC Life Insurance Invest 4G Plan
Canara HSBC Life Insurance’s Invest 4G Plan is a Unit Linked Individual Life Insurance Savings Plan that you may tailor to your own objectives and changing needs.
This plan allows you total control over your money thanks to an unrivalled mix of Portfolio Management Options and flexibilities. It also includes Life Insurance to cover your family in the event of your untimely death.
2. Aegon Life iMaximize Secure Plan
The Aegon Life iMaximize Plan is a ZERO Premium Allocation fee unit-linked insurance policy (ULIP plan). This distinguishes it as one of the most cost-effective insurance plans, making it the ideal insurance + investment option. This plan may also be purchased online, which adds to its ease.
3. Aviva Life Bond Advantage Plan
Aviva Life Bond Advantage is a single premium unit-linked insurance plan (ULIP) in which the nominee receives the greater of the Sum Assured or the Fund Value as Death Benefit if the Life Insured dies during the policy lifetime. On the other hand, if the Life Insured lives until the end of the Policy Tenure, he will get the Fund Value as Maturity Benefit. The Accidental Death Benefit rider is integrated into this plan.
4. Bajaj Allianz Future Gain
The Bajaj Allianz Future Gain Unit Linked Insurance Plan invests premiums in market-linked funds. As a result, the plan offers both market-linked growth and insurance protection. This is a Unit Linked Plan in which premiums may be paid for the whole plan term through Regular Premiums or for a short tenure via Limited Premiums.
5. Birla Sun Life Wealth Assure ULIP Plan
The BSLI Wealth Assure Plan is a Linked Insurance Plan with a Limited Pay Unit. It is a non-traditional plan with no bonus provision. The premium for this plan must be paid for 5 years, and the policy is valid until the end of the Policy term.
Power of Compounding
The power of compounding refers to a method that increases mutual fund returns. The original investment’s interest is reinvested in order to gain interest on interest. In other terms, it is about profiting from profiting. It permits interest earned to gain interest, increasing the value of the returns.
The fundamental benefit of the power of compounding is the increase in the value of assets. Until the money is preserved for investment, a chain reaction of investment develops.
The power of compounding calculator can help you understand how compounding adds to long-term wealth building. The power of compounding calculator can also help you make important financial choices and manage your money more effectively.
Conclusion
ULIP plans are best suited for those who want to invest for the long term and have a high-risk tolerance. The longer the money is invested, the better their returns will be.
As a result, it is usually advised to use ULIP plans only if a person has a defined long-term aim to pursue. Policy selection is entirely personal and is determined by various criteria like the policyholder’s income, circumstances, long-term aspirations, and so on.
Also, don’t forget to use the power of compounding calculator to calculate the increased returns from the ULIP plan!