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Individual investors are always in search of investment arenas which will provide them with protection against future uncertainties and give high returns. Under ULIP, a portion of your investment is put aside for securing your life and the rest is invested in funds that are equity-oriented or debt-oriented or hybrid. This article will help you understand the various aspects that you need to consider when investing in ULIPS.
Unit linked Insurance Plan or ULIP offers a perfect combination that satisfies both these financial concerns. It is a saving scheme that gives the benefit of life insurance protection as well as capital growth. It is the Insurance Regulatory and Development Authority that regulates ULIPS and the lock-in period under this scheme is of 5 years.
In India, there are various types of ULIPS that are available which cater to a wide range of audience based on their risk appetite and end investment objective:
Investing in ULIPS can have many advantages, some of which are as follows:
Premiums paid towards ULIP are eligible for deduction under section 80C. Although, before the announcement of the Union Budget 2021, ULIP used to fall under the EEE (Exempt, Exempt, Exempt) category. However, the FM proposed certain changes which will affect the taxation of ULIP. Below are the major changes:
In order to deal with the ever-changing market conditions, design of ULIPS takes place in a manner which will prove an option to switch from one type of fund to other at any point in time to meet your changing requirements.
ULIPs have a lock-in period of 5 years hence it helps in achieving long term goals like children’s education, marriage or buying a car or house. Additionally, individuals who invest in ULIP generally invest for a longer period of time in order to reap the benefits of the market.
|Tax Benefit||Deduction can be claimed under section 80C||Deduction can be claimed under section 80C plus maturity amount is also exempt||The deduction can be claimed under section 80C|
|Taxation||Gains are taxable similar to ELSS||None||Gains more than INR 1 lakh in a given financial year is taxable under LTCG @10%|
|Lock-in period||5 Years||15 Years||3 Years|
|Risk||Highest among the three||Risk-free, as monitored and backed by the government||When compared to ULIPS, less risky|
|Underlying Asset||Equity, Debt and Balanced||Fixed Income Oriented||Equity|
At least these charges will be there:
Mortality Charge, Premium Allocation Charge, Switching Charge, Surrender Charge, Policy Administration Charge
|Only account opening charge of INR 100||Approximately, on an average Expense Ratio which ranges from 1.05% to 2.25%|
The lock in period in Unit linked Insurance Plan is 5 years.
If an individual changes his/her mind than usually there is a free lock-in period of 30 days.
Yes, investors are given the freedom to change from one fund to another at any point of the time.
Yes, if an individual fails to pay the premium within the first 3 years of the policy, insurance cover is immediately discontinued. For premiums not paid after 3 years, the surrender value is paid and the contract is terminated.
Yes, one can surrender their ULIP after paying the surrender charges.
Yes, Top-up facility is provided but it depends on the features of the ULIP scheme that you have availed.