Unit Linked Insurance Plan (ULIP)
Insurance is a financial product that has quite a few variants depending upon what exactly is being insured and what use will the premium amount be put to. Life insurance plans, health insurance plans, loan insurance plans are some of the most common insurance plans that we come across when we learn about insurance policies. Unit-linked insurance plan is a widely acclaimed investment cum insurance instrument across the globe. Unit-linked insurance plans or ULIPs as they are generally called is an integrated financial product that has features of both insurances as well as investment.
What is ULIP?
ULIP is a financial instrument that offers customers the best of both the insurance and the investment world. ULIPs are provided by insurance companies to customers who want to avail insurance as well as grow their money while at it.
ULIPs offer customers insurance cover as well as a choice to capitalize on various investment tools like stocks, bonds and mutual funds. The double benefit of protection combined with the freedom to choose your investment avenue makes ULIPs a truly popular financial instrument among customers.
HOW DO ULIP WORK?
A ULIP or a Unit Linked Insurance Plan is a financial instrument that provides risk cover as well as investment options for the policyholder. ULIPs permit the policyholder to invest in stocks, bonds or mutual funds. The policyholder can choose the investment type based on his risk appetite as all option guarantee returns.
ULIPs do not assure returns and are primarily positioned as a long term wealth generation product.
When policyholders invest money in ULIPs, the insurer is given the option to choose investment option between Equity, Debt or mix of two.
The investments are managed by fund managers from the insurance company, taking away the need to track the investments.
ULIPs allow the policyholder to invest in multiple options, ranging from low-risk to high-risk as the case may be.
ULIPs also allow the policyholder to switch between their investments, allowing them to maximize their gains when market conditions are conducive.
FEATURES/BENEFITS OF ULIP
Multiple Benefits out of a Single Schemeof
Benefi of life insurance and market linked returns
ULIP are meant for long-term investment
DEATH AND MATURITY BENEFITS
Following are the death and maturity benefits associated with ULIPs.
These benefits are central to any ULIP policy irrespective of the insurance provider the scheme is availed from. The benefits may, however, slightly differ from one insurance company to another.
Death Benefits: Death benefits of ULIPs are offered in case of the unfortunate demise of the policyholder. Generally, the death benefit is equal to the sum assured plus fund value. However, depending upon the cause of death (accidental or natural) death benefits may vary.
Maturity Benefits: Maturity benefits are offered to policyholders when the policyholder survives beyond the maturity period. Maturity benefits are equal to the amount of fund value. However, certain insurance companies may offer additional benefits subject to policy terms and conditions.
WHY YOU SHOULD BUY ULIP?
A ULIP provides investors with a number of advantages, which are listed below:
Flexible : ULIPs offer investors the option of switching between funds, resulting in better choices to the investor. Investors can choose to invest in either debt or equity funds depending on their risk appetite and market conditions.
Risk appetite : ULIPs offer investors to pick choose their investments based on their risk appetite. Low-risk appetite investors can choose to invest in debt funds and those who are willing to take a higher risk can opt for equity funds.
Tax benefits : With ULIPs being life insurance products, they offer tax benefits in the form of tax-free maturity provided the sum assured is 10 times of the premium.
Low charges : ULIPs do not have high charges associated with them. IRDA has capped the annual charge on ULIPs at 2-2.25% p.a. for the initial 10 years, with the charges on par with those of mutual funds.
Long term investment : ULIPs are a long term investment option due to the increased lock-in period which also reaps bigger returns.
ULIP ELIGIBILITY CRITERIES
The eligibility criteria for ULIPs are mentioned below:
Should meet the criteria for entry age (depends on the insurer and policy type).
Should be below the maximum entry age (depends on the insurer and policy type).
Should be able to make the premium payments as per the policy selected.
END OF FUND
For retirement planning, These ULIPs are offered for customers who want to plan their retirement earnings by paying premiums while they are employed.
For child education, These ULIPs offer benefits for your child’s education. These benefits include rolling out money at key education milestones of your children and also ensuring their education expenses are paid in case of some unforeseen circumstances take place.
For wealth creation, ULIPs meant for wealth creation help customers invest and save their money so that they have a good corpus at any particular point of time.
For medical benefits, ULIPs like these are aimed at providing financial assistance at times of medical emergencies. Special riders can be availed for protection against major illnesses or critical illnesses.
In a Unit Linked Insurance Policy, the cash you pay more only as costs arises into a pool called the Unit Linked Fund. This store is overseen by the insurance agency and is put resources into a scope of value and obligation instruments to offer you the double advantage of a Life Cover and a possibility to get most extreme advantages.
A Unit Linked Fund can be separated into various individual parts called units.
Net Asset Value (NAV) is the cost of units of a reserve and is determined in rupees.
Reserve Value is the complete estimation of your premiums that are put resources into different assets of your decision.
It very well may be determined by utilizing the recipe,
Reserve Value = Total Number of units under an approach x Net Asset Value
For instance, on the off chance that you have 1000 units of a store for which the NAV is '100, the reserve worth will be '1,00,000.
The advantage you will get toward the finish of the arrangement term is called Maturity Benefit. The Maturity Benefit will be equivalent to the Fund Value at the hour of development.
You ought to check:
All the charges deductible under your strategy, for example, approach assignment charges, finance the executive's charges and other such important charges Features and advantages of your arrangement, for example, dependability increments, premium instalment alternatives and all the more such significant advantages Limitations and avoidances under your arrangements like holding up period, lock-in period, previous sicknesses and all the more such applicable data.
Lapsation* of your arrangement and its hindrances
Illustrations demonstrating the advantages payable to you under endorsed situations of 4% and 8% returns.
*If you don't pay your strategy premium before the finish of the elegance time frame, all advantages gave under your approach will stop. This procedure is called arrangement lapsation . Elegance Period is the additional time given after the premium due date to pay your premium. It would be ideal if you allude your approach record or item leaflet to know more.
The cash paid in case of a terrible occasion relies upon upon the kind of the strategy. On the off chance that you have a One Pay policy* your friends and family will get the Death Benefit, equivalent to higher of An or B or C.**
On the off chance that you have a Limited Pay* or Regular Pay* strategy:
For passage age under 50 years, Death Benefit is the higher of (A+B) or C.
For passage age more prominent than or equivalent to 50 years, Death Benefit is the higher of An or B or C
A = A fixed sum called the Sum Assured including Top-ups, assuming any and decreased by any fractional withdrawals+
B = Fund Value including Top-up Fund Value, assuming any
C = Minimum Death Benefit#
These decisions are:
One Pay Policy: Policies where you need to pay the premium just a single time
Limited Pay Policy: Policies where you need to pay premiums for a set number of years and not for the whole length.
Regular Pay Policy: Policies where you need to pay premiums for the whole term of the strategy
#Here, the base passing advantage will be 105% of all premiums paid.
*Some of the ULIPs offer you the decision of premium instalment term.
+Partial withdrawals are permitted after the fruition of five strategy years gave monies are not in DP Fund. You can make a boundless number of incomplete withdrawals as long as the aggregate sum of fractional withdrawals in a year doesn't surpass 20% of the Fund Value in an arrangement year. The fractional withdrawals are liberated from cost. DP Funds allude to Discontinued Policy reserve and comprise of cash from slipped by approaches.
A switch is a choice to move your cash among value and
obligation reserves. You can utilize the switch alternative just on the off
chance that you have picked the Fixed Portfolio Strategy^ in your Unit Linked
Insurance Policy. It is relevant just on target that you have just put
resources into the current assets. To move your new premiums into an alternate
store, you can utilize the superior redirection administration.
Fixed Portfolio Strategy is an alternative utilizing which you can deal with your cash by putting resources into your preferred value and obligation assets.
With Premium Redirection, you can decide to put your future premiums in an alternate reserve. The premiums which were prior put will stay in indistinguishable assets from picked by you.
Indeed, you can withdraw+ a piece of your income whenever after finishing of five years. Be that as it may, the estimation of withdrawals in a year can't be over 20% of the store esteem. For instance, in the event that your reserve esteem is '1,00,000, at that point you can pull back a limit of '20,000 in the year.
Provided monies are not in DP Fund. You can make a boundless number of fractional withdrawals as long as the aggregate sum of halfway withdrawals in a year doesn't surpass 20% of the Fund Value in an approaching year. The fractional withdrawals are liberated from cost. DP Funds allude to Discontinued Policy store and comprise of cash from slipped by arrangements.
Truly, you can stop your strategy by starting a give up demand. The charges for giving up your strategy fluctuate from item to item. On giving up your approach, you will get the Surrender Value which will be equivalent to your reserve an incentive on the date of giving up. No instalment will be made to you before the lock-in time of five years. While you can stop your approach before the arrangement term, it is fitting to remain contributed for at any rate 10 years to appreciate the most extreme advantages offered by your strategy.
The decision of getting your Maturity Benefit as equivalent yearly compensation outs over a time of five years is called Settlement Option.
Recovery implies encashing the units at the current NAV offered by the organization. This is pertinent in the event of Partial Withdrawals, Switches, Maturity, Surrender, Settlement Option or on an installment of Death Benefit.
The date on which your Life Cover starts is the date of initiation of your approach. This will be the date appeared in your arrangement authentication. On a similar date, the age of the life assured* and term of the approach are determined.
*Life Assured is the individual whose life is canvassed in the protection contract.
Customary Premium Policy is an arrangement wherein you decide to pay your premiums all through the approach term. The recurrence of premium instalment can be month to month, yearly or half-yearly, according to your benefit.
is the date on which your excellent instalment is expected. For instance, on the off chance that your approach's date of initiation is January 4, at that point your month to month premium due dates will be February 4, March 4, etc.
In any case, on the off chance that the date of the beginning is January 31, at that point the following month to month premium due date will be the last date of each schedule month, for example, February 28/29, etc.
*Some of the ULIPs offer you the decision of premium installment span. These are:
Limited Pay Policy: Policies where you need to pay premiums for a predetermined number of years and not for the whole span.
Regular Pay Policy: Policies where you need to pay premiums for whole
term of the arrangement
Spread Cessation (date of development) is the date on which your strategy arrives at its development or the date when your arrangement span closes. On this date, your Maturity Benefit gets payable to you.
ULIPs usually charge a premium allocation charge and a mortality charge.
If you fail 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.
A mortality charge is levied on ULIPs to cover the cost of insurance. The charges vary depending on the coverage type, age of the policyholder, health etc.
A regular premium policy is one where the premium is paid throughout the policy term. Payments can be made monthly, quarterly, half-yearly or annually, depending on the policy.
Yes, as per an IRDA directive, ULIPs can be surrendered upon payment of a surrender charge.
Some part of your premium goes into unit investment. This depends upon the type of ULIP product and varies from company to company.
Yes. Top-up facility is available and is subject to features of the ULIP scheme that you have availed.
Any refund of premiums is applicable only within 15 days of receipt of policy document. However, insurance companies might deduct a part of the premium as various fees and charges before reimbursing the amount.
Any investment made directly or indirectly in the stock market is not sure to offer returns. Returns depend upon the performance of the fund that customer’s money is invested in.
Most insurance companies offer a free-look period of 30 days to customers.
The entire premium amount is used to buy units. The quantum of units bought depends on the ULIP and the year.
Yes. Customers can freely switch between funds as per their wish and convenience. However, a certain switching charge is applicable and levied by insurance companies.
Yes. Insurance providers are expected to furnish annual reports, market scenarios and other fund related analysis and risk control measures to customers.
There are no partial withdrawals allowed for pension and annuity plans. For other plans, a partial withdrawal is generally allowed from the 5th year onwards.
As per a directive, all ULIPs offer guaranteed returns as laid down by IRDA. The returns are payable upon the ULIP’s maturity.
Unlike traditional insurance policies, ULIP schemes have a list of applicable charges that are deducted from the payable premium. The notable ones include policy administration charges, premium allocation charges, fund switching charges, mortality charges, and a policy surrender or withdrawal charge. Some Insurer also charges "Guarantee Charge" as a percentage of Fund Value for built-in minimum guarantee under the policy.
Since ULIP (Unit Linked Insurance Plan) returns are directly linked to market performance and the investment risk in the investment portfolio is borne entirely by the policyholder, one needs to thoroughly understand the risks involved and one’s own risk absorption capacity before deciding to invest in ULIPs.
There are several public and private sector insurance providers that either operate solo or have partnered with foreign insurance companies to sell unit-linked insurance plans in India. The public insurance providers include LIC of India, SBI Life and Canara while and some of the private insurance providers include Aegon Life, Edelweiss Tokio Life Insurance, Reliance Life, ICICI Prudential, HDFC Life, Bajaj Allianz, Aviva Life Insurance,Max life insurance , Kotak Mahindra Life, and DHFL Pramerica Life Insurance.
Investment in ULIPs is eligible for tax benefit up to a maximum of Rs 1.5 lacs under Section 80C of the Income Tax Act. Maturity proceeds are also exempt from income tax. There is a caveat. The Sum Assured or the minimum death benefit must be at least 10 times the annual premium. If this condition is not met, the benefit under Section 80C shall be capped at 10% of Sum Assured while the maturity proceeds will not be exempt from income tax.
ULIP schemes offer liquidity to customers depending upon the insurance provider from which they have been availed. Most insurance companies offer a lock-in period of 3 or 5 years after which customers are free to make either full or partial withdrawals.
Transparency is one of the key features of ULIPs. Unlike other investment tools, ULIPs offer high flexibility to customers and hence they control their ULIP policies to a good extent. Clear benefits and features, illustrative brochures and free-look period make sure that customers are doubly sure before they start investing in their ULIP schemes.
Death and Maturity Benefits:
Following are the death and maturity benefits associated with ULIPs. These benefits are central to any ULIP policy irrespective of the insurance provider the scheme is availed from. The benefits may however, slightly differ from one insurance company to another.• Death BenefitsDeath benefits of ULIPs are offered in case of unfortunate demise of the policyholder. Generally, death benefit is equal to the sum assured plus fund value. However, depending upon the cause of death (accidental or natural) death benefits may vary.• Maturity BenefitsMaturity benefits are offered to policyholders when the policyholder survives beyond the maturity period. Maturity benefits are equal to the amount of fund value. However, certain insurance companies may offer additional benefits subject to policy terms and conditions.
ULIPs offer not only protection and returns but also tax exemption under section 80C of the Income Tax Act for life insurance and health insurance plans and under section 80D for life insurance and critical illness riders. Also, ULIPs are a great way to save in a disciplined way and to also ensure growth of the saved amount.
ULIP schemes offer flexibility that is not just applicable to one aspect of the policy but is comprehensive in nature. Following are the kinds of flexibility that you get to avail with your ULIP schemes.
• Life cover can be chosen
Life cover that comes with the insurance part of ULIPs can be chosen by customers depending upon their financial capabilities.
•Premium amount can be changed
After a certain period of time, almost all ULIPs provide their customers option to change the premium amount. This amount can either be increased or decreased by customers depending upon their current financial status. Top-up facility is also offered by most ULIP schemes so that customers who want to maximize their gain can invest higher additional amounts whenever they want.
• Riders can be opted for
Riders are additional benefits that can be availed by paying a marginally higher premium. Examples of such riders are a critical illness rider, major illness rider etc. ULIPs allow customers to avail additional optional riders for added benefits and enhanced protection.
• Fund option can be chosen
ULIPs are insurance policies where a part of your money is put into an investment avenue like mutual funds, stocks, bonds etc. Most insurance providers offer customers the flexibility to choose the fund type in which they want their money to be invested. These funds range from aggressive to conservative variants so as to cater to the need of almost all kinds of customers.
Since ULIPs invest money in various funds and also offer protection, these products are low-risk investment tools. These policies are great for customers who wish to avail the advantage of market growth without actually participating in the stock market.
Multiple Benefits out of a Single Scheme
The best feature of ULIPs is that these policies offer not juts insurance benefit but also an avenue for people to grow their money through investment in shares and funds. This investment tool is ideal for customers who have a lower risk appetite but want to grow their money, nonetheless.
• Rider Claims:
Different riders can be attached to the base life insurance policy for enhanced protection. The riders can be an accidental rider, critical illness rider, waiver of premium rider etc. For different riders, different claim proceedings are required. Some riders may be valid with the death claim like accidental death rider or some riders need to processed standalone like a waiver of premium rider in case of disability.
For Critical Illness Rider- necessary medical documents such as first diagnosis report, Doctor's report, etc are required. For Accidental disability rider - a copy of FIR, Certificate of disability by the treating doctor, doctor's report etc are required.
• Maturity & Survival Claims
The payment made by the insurance company on completion of the term of policy or maturity date is called maturity payment. The amount payable consists of sum assured plus any bonus/incentives.
The insurance company informs the policyholder in advance by sending bank discharge form for filling details in it. The form needs to be returned to the insurance company with an original policy document, ID proof, Cancelled Cheque and copy of passbook.
• Life Insurance Claim Process
The main purpose of taking an insurance policy is that it should come in use in times of crisis.
Death claim settlement process
Step One: Intimation to the insurance company about the claim.
The nominee should inform the insurance company as soon as possible to enable the insurance company to start with the claim process. The details required for intimation are policy number, name of the insured, date of death, cause of death, place of death, name of the nominee, etc. The claim intimation form can be obtained from us or even by downloading it from the insurance company website.
Step Two: Documents required
1. The nominee will be asked to furnish the following documents:
2. Death certificate
3. Age of the life insured (if not already given)
4. Original Policy document
5. Any other document as per the requirement of the particular insurer or case-related.
6. For early death claims i.e. the claim that has arisen within three years of the policy is in force the company will do an extra investigation to ensure it is a genuine claim. They might do the following:
>> Check with the hospital if the deceased was admitted to the hospital.
>> In case of an air crash confirmation from the airline, authorities check if the policyholder was a passenger on the plane.
>> In case of death from medical causes, the insurance company will ask the hospital to provide doctor's certificate, treatment records etc If the policyholder dies due to murder, suicide, accident then police FIR report, post mortem report etc shall be required.
Step Three: Submission of required Documents for Claim Processing
For quicker claim processing, the nominee must submit complete documentation as early as possible and any other documents that the company needs to pass the claim.
Step Four: Settlement of Claim
As per the regulation 8 of the IRDAI (Policy holder's Interest) Regulations, 2002, the insurer is obligated to settle a claim within 30 days of receipt of all necessary documents including extra documents sought by the insurer. If the claim requires further investigation, the insurer needs to complete its procedures within 6 months from receiving the written intimation of claim.