25 February 2020
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Everything You Need to Know About Unit Linked Plans: ULIP


ULIPs are emerging as the ultimate solution to millions of people in the world, but do you not wonder: what are ULIPs? Unit Linked Plans abbreviated as the ULIP provides a two-way benefit for policy bearers who want to buy insurance as well as invest in the future. 

Anyone availing Unit Linked Insurance Plans are free to choose a suitable plan either for health insurance or life insurance. The total amount along with the division for savings is decided by the policyholder himself, henceforth which, a part of the premium directly gets invested in instruments like mutual funds, SIPs, etc. The policyholder has the complete freedom to opt for a monthly or yearly premium policy, as per his will.

Benefits of Availing ULIP

ULIPs are comparatively expensive than the regular mutual fund policies. However, the former provides more secured and protected investment policies for a longer period of time. 

Thus, if you are looking for a few good reasons as to why you should invest in ULIP, here are some benefits you should consider:

#1. Partial Claiming or Withdrawal

Unit Linked Insurance Plans are potentially the best friend one needs. As per the rules and regulations, policyholders can claim a part of the total amount in ULIP, during an urgent need. Irrespective of the cause, one can easily claim a stipulated fraction of the amount invested in the policy during the time of buying. However, one can only claim after continuing the policy for a period of five years.

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#2. Flexible

Unit Linked Plans are known for their flexible investment options. Though the risk-taking factor is similar to that of the mutual funds, ULIP offers a wide number of options to choose from, solely depending on the amount of risk a policyholder wants to take. 

Apart from that, a policyholder also has the freedom to switch funds as every policyholder is allowed twelve switches per year. Besides, one can also increase the premium according to their needs and demands. 

#3. Tax Relaxation Under Section 80C

Tax relaxation is one of the best benefits of Unit Linked Insurance Plans. Under Section 80C, if a policyholder invests in a ULIP, he/she can request considerable deduction or exemption from tax.

#4. Long Term Investment

ULIP is usually availed for a longer period of time, which is mostly synchronized with the risks attached and heavy return at the time of policy maturity. This also means smarter investment and better savings for every policyholder.

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Tax Deduction on ULIP

Like most of the policies, the premium on maturity is subjected to tax implementation. However, there are several ways to legally avail exemption from tax. Tax benefits in ULIP can be availed only after the completion of 5 years from the date of policy buying. 

Partial or complete claiming of the policy before a period of 5 years is not subject to any kind of tax deduction. Apart from that, the policyholder should have a good credit score and a history of regular premium submission. If all the criteria are fulfilled responsibly, the policyholder will be able to request for a tax deduction on the Unit Linked Insurance Plans. 

As an added advantage, the policyholder will also get a cumulative tax deduction from the previous years (counted post the 5th year).

Do ULIPs Offer Life Cover?

Unlike the regular mutual funds and SIPs, ULIP provides one of the best benefits to the policyholders. The policyholders claiming Unit Linked Insurance Plans are benefitted with life cover. Thus, in the case of death of the policyholder, the family will be benefited with a certain amount promised in the policy.

Are ULIPs Expensive?

Unit Linked Insurance Plans might seem to be expensive on the forefront as compared to the regular mutual funds. However, ULIP offers long term benefits and added privileges which are not offered by mutual funds. 

Besides, the Find Management Charges or the FMC are usually higher in case of mutual funds and lower for ULIP. Where the former charges 2.5% as FMC, the latter charges an approximate 1.5% on the policy premium.

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What are the Different Charges Levied on ULIPs?

Unit Linked Insurance Plans are no different in terms of additional charges. The monthly or annual premiums of these policies are calculated only after considering different types of charges levied on the policy amount. 

Some of the charges are included in all the premiums and some, are only charged during the time of policy buying. These charges also depend on the type of policy availed by the policyholder. These are:

  • Initial fees
  • Premium allocation charge
  • Fund management charge
  • Surrendering charges
  • Mortality fees
  • Administration fees  
  • Service taxes

Wrap Up

Unit Linked Insurance Plans have always had an upper hand over the mutual funds and SIPs. However, with added offers and attractive benefits, comes higher risks and premium investment. Hence, every policyholder should thoroughly research the available options and only choose what suits them best.

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Gaurav Jain
Article by Gaurav Jain
Hey There! My name is Gaurav Jain, a full time affiliate marketer since 2007. The reason for starting eMoneyIndeed.Com blog is to help you Save & Make Money Online. I write about Blogging, Online Marketing, Webhosting, SEO, Affiliate Marketing, Startups, Social Media, Email Marketing and more. Hope you enjoy the posts on eMoneyIndeed.com

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