
Table of Life Insurance Companies market share. This is based on the New Bu...
Until some years back, the insurance market was ruled by the simple and straight forward, term and endowment plans. With the opening up of the sector, buying a life insurance policy came up with more options in the form of Unit linked Plans. Primarily insurance policies, Unit Linked Insurance Plans (ULIP) provide protection and also help accumulate wealth. Here are the 5 simple things which you should know about ULIPs -
1) USP of ULIP
What sets ULIP apart from the traditional insurance policies is its ability to blend investment and insurance in one single plan. In a ULIP you get to invest in the capital markets, as per your risk profile, through its various fund options.
Key Advantages of ULIP
- Insurance Cover
- Tax Benefits under Section 80C
- Option of Systematic Investment
- Gives you a range of investment options to choose from as per your risk profile
2) How does a ULIP Work?
The premium in a ULIP goes towards meeting the insurance needs and towards building wealth. In the initial policy years, a large part of the premium goes towards policy expenses. Post the deduction of these expenses, the premium is divided between providing a life cover and making an investment. Units are allocated for the amount invested, in a fund of your choice. The fund could be equity, debt, or a combination of the two. The value of the units allocated depends on the performance of the underlying fund. In the first 2 to 3 policy years, the fund value may remain low may remain low due to the high expenses deducted initially.
3) Costs involved in ULIP
Investments in a ULIP involve expenses such as:
4) ULIP and Tax Benefits
The premiums on a ULIP are eligible for tax benefits under Section 80C where a deduction of up to Rs 1 lakh from the taxable income of the individual is permitted. In case of policy holder’s death, the amount received by the nominee is totally tax free in their hands. The maturity too is classified as a payout under Section 10 (10D) and the entire amount is tax free in the hands of the receiver.
5) Surrender of ULIP
Unit linked insurance plans could be surrendered prematurely; however there could be cost implications On surrender, a percentage of the fund value is to be paid as surrender charges, depending on the scheme. In case where the ULIP is surrendered in the first three years, the insurance cover would cease immediately. However, the surrender value can be paid only after 3 years. So though the policy acquires a surrender value before completion of 3 years, it is payable only after the completion of three policy years. Many insurance policies also allow part surrender or partial withdrawal after 3-5 years without any cost and without any reduction in the insurance coverage.
Making the Most of Your ULIP
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