If you have invested in an insurance policy, you may have come across the term ULIP. It is a unique insurance product that provides dual benefits of insurance protection and investment opportunity. Read on to know more about the latest trends in ULIP.
ULIP or Unit-Linked Insurance plan is a type of insurance policy that gives you the dual benefit of investment and insurance protection under a single umbrella. When you pay the premium for ULIP, one part of the amount is utilised to provide life cover and the other half is invested in various money market investment tools as per your choice. You can allocate the fund different mutual funds as per your risk-taking capacity, and investment goal.
The ULIPs are a unique and innovative financial product not just in terms of their structure but also in terms of returns offered. On one hand, you get the security of a life cover, that will help your family get a death benefit pay out in the event of your unfortunate demise, and on the other hand, you get an opportunity to grow your wealth and get valuable returns on your investments.
As an investment option, the returns you get from ULIPs are market-linked and the amount you get greatly depends on the market condition and the funds’ performance. However, historically, ULIPs have offered high returns, which are better than the returns offered by bank fixed deposits, recurring deposits and other traditional investment options.
Since 2018, there has been a renewed interest in ULIP investments among investors across all categories, thanks to the introduction of the low-cost and new-age plans. The IRDA (Insurance Regulatory and Development Authority) and the mutual fund houses introduced major changes in the ULIP structure to make it more lucrative for the investor. Here are the important new trends in ULIP.
One of the important concerns that many investors had about ULIP is that their life insurance cover will eat into the returns on investment. And, to address this issue, the IRDA issued a mandate to all insurance companies to offer return of mortality charges to all investors.
The mortality charges are essentially the fees that the insurance companies deduct for providing life cover. Many insurance companies nowadays have started to add the total mortality charge deducted earlier to the fund value upon policy maturity.
When the Union Budget was announced in 2018, LTCG (Long-term Capital Gains) Tax was introduced on equity funds and stocks. And, ULIPs being an insurance tool, they were exempted from this tax regime. This gave ULIPs an edge over mutual funds, ELSS (Equity-Linked Savings Scheme) and other investment options. This along with the return of mortality charges makes ULIP a valuable tax-saving investment option that also offers valuable returns.
Earlier, many people were sceptical of investing in ULIPs because of the various charges associated with it, which affected the returns. Some of the charges levied earlier were – fund switching charges, premium allocation charges, policy administration charges, fund management charges, partial withdrawal charges, etc. However, the trend has changed now. With the rising demand for ULIPs, many fund houses started cancelling the charges, which resulted in better returns scope for the investors.
With the elimination of the various charges, the investors find the ULIPs an attractive investment option. Also, since many insurance companies offer a variety of plans, you can easily compare them online and make an informed investment choice.