Frequently Asked Questions About ULIPs

What does ULIP mean?

Unit Linked Insurance Plans (ULIPs) combine the benefits of life insurance and investments. These plans allow you to invest in various funds, such as equities and debt, based on your goals and risk appetite. 

 

The premium towards ULIPs is divided into two components - investment and insurance. The part that goes towards the investment fetches returns, and the remaining goes towards life coverage. 

What are the advantages of a Unit Linked Insurance Plan?

ULIP plans have several advantages, making them a popular choice for financial planning. One of the major benefits is that they offer the perks of life insurance and investment in a single tool. 

 

These also offer the flexibility of choosing the premium payment plan and the type of fund for investment. In addition, you can enjoy transparency, tax benefits, and the potential for higher returns compared to some fixed-return policies. 

Are ULIPs better than SIPs?

ULIPs (Unit Linked Insurance Plans) and SIPs (Systematic Investment Plans) are popular investment options with unique features. ULIPs combine the benefits of insurance coverage and investment. SIPs are a way to invest in mutual funds through instalments. 

 

Given their features and benefits, ULIPs are better suited if you prioritise insurance and long-term growth. Whereas, SIPs are more suitable if you are a conservative investor seeking stable investments. Consider your goals, finances, risk appetite, and other factors while deciding.

Does Unit Linked Insurance Plans have a lock-in period?

Yes, these plans come with a lock-in period of up to 5 years. You can make partial or complete withdrawals of the deposited amount only after this period ends. It starts from the date the policy started or the date the units are allocated, whichever is earlier.

Are there any risks associated with Unit Linked Insurance Plans?

Yes, ULIP plans come with some risks, like every investment option. They do not provide guaranteed returns, as fluctuations in the market can impact the earnings. They also come with fees and charges that influence your overall returns. 

Can I claim tax benefits on Unit Linked Insurance Plans?

Yes, you can claim tax benefits on ULIPs under Section 80C of the Income Tax Act. The premium payments are eligible for a deduction of up to ₹1.5 Lakhs per year. Additionally, the returns that you get are exempt from tax under Section 10(10D) of the ITA. 

Can I withdraw the funds deposited in ULIP before maturity?

Yes, you can make premature withdrawals from your ULIP deposits. However, remember that most issuers do not allow premature withdrawals before the lock-in period ends.

What are the average returns on Unit Linked Insurance Plans?

Over the long term, these plans can generate lucrative returns, ranging from 10% to 12%. However, the exact returns that a Unit Linked Insurance Plan can provide depend on various factors. This includes market fluctuations, fund management, asset allocation, risk profile, and more.

What are the mortality charges associated with ULIP?

Companies offering Unit Linked Insurance Plans levy these charges to compensate for the financial protection they offer. These are calculated based on the sum at risk, which is the death benefit minus the current fund value. 

 

The sum at risk is the amount that the insurance company has to pay from their pocket in the unfortunate event of the policyholder’s demise. The charge generally decreases with an increase in the value of the fund during the policy’s term.

What are the fees and charges associated with ULIPs?

Some costs that come with these plans are premium allocation charges, fund management fees, mortality charges, and guarantee charges. Be sure to consider while you choose the most cost-effective and lucrative plan.