Unit Linked Insurance and Plans, also known as ULIPs, are insurance plans that offer the benefits of an insurance cover linked to market investments. ULIPs are goal-based financial solutions, also linked to the capital market this allows flexibility to invest in equity or debt funds depending on the investor’s risk appetite.
Difference between ULIP policy and Term insurance
|Features||ULIP policy||Term insurance|
|Coverage||Term insurance plan only offers income tax benefits, Flexibility, Variety of investment options, Higher returns and Liquidity||Term insurance plan only offers death benefits to the dependents of policyholders.|
|Add-ons||Here You can add-ons to ULIP offer several benefits, Liquidity, Liquidity, Long-term investment benefits and Withdrawal benefits.||Term Insurance provides you add-ons to increase your benefits|
|Sum insured||ULIP plans are packed with various features to help investors ensure financial security against all future adversities, enjoy tax benefits and multiply their financial corpus. Unsurprisingly, unit linked insurance plans remain an investment choice for both novice and seasoned investors..||Term insurance is the most affordable life insurance product available. you should consider your need or your debt and other things when you buy your Term insurance|
|Flexibility||ULIPs are dynamic plans and flexible by nature||The flexibility to switch between different funds is a must.|
|Premium||In a single premium ULIP.||Term insurance is the most affordable life insurance product available|
Why should you buy a Unit Linked Insurance Plan policy?
ULIP combines the best of insurance and investments making it a better option than investments or insurance By buying ULIP you reap the gains in the stock market without taking heavy risks and also get a safety net for your family in the form of life cover. Here are some reasons that make ULIP a good investment choice for you1. High returns– ULIP investments can provide 12%-15% return on investment for a tenure of 10 years.
2. Different types of investment options– ULIPs offer different schemes to the investor and based on risk taking ability, an investor can choose from an aggressive ULIP that mainly invests in equities to a conservative ULIP that invests in the debt market.
3. Flexibility– ULIPs come with the option of switching between different schemes based on changing circumstances and the investor’s risk appetite The flexibility to switch between different fund options as per financial conditions helps an investor to capitalize on investment opportunities.
4. Tax Benefits – Unit Linked Insurance Plan ULIPs provide income tax benefits on the premium paid on the policy under Section 80C of the Income Tax Act, 1961.1.
5. Liquidity– In case of emergency or unfortunate event, ULIP also allows partial withdrawal of money to meet your fund requirement.
Benefits of a Unit Linked Insurance Plan (ULIP)
1. Maturity Benefit- If a policyholder survives beyond the maturity period of the policy, he gets the accumulated funds as the maturity/survival benefit of the insured. Which is equal to the fund value paid as maturity benefit Maturity gains are exempt from tax under section 10(10D).
2. Death Benefit- Death benefit is paid in case of the unexpected death of the policyholder during the policy term, or to the family members of the policyholder registered as beneficiaries. Tax Benefits 1- The amount paid as a premium for ULIP is eligible for tax deduction up to a maximum of Rs 1.5 lakh in a year under Section 80C of the Income Tax Act, 1961. (10D)
3. Long-term investment benefits – The longer the investment time frame in the market, the more insulated you are from market price fluctuations which make investing in the market for the long term give higher returns and help you cope with market volatility. ULIP lets you invest in the market for a long period of time so that you can also get higher returns on your investment.
4. Withdrawal benefit- ULIP allows the investor to withdraw part of the fund in case of any emergency after a specified period; investors can withdraw the fund up to a certain limit to meet their fund requirement due to an emergency.
Eligibility criteria for buying a Term Insurance policy
|Minimum age at entry||14 years|
|Maximum age at entry||55 years|
|Minimum Policy Tenure||5 years (minimum lock-in period)|
|Maximum Policy Tenure||Only after its completion can you make partial withdrawals from the ULIP policy.|
|Who can Purchase?||ULIP plans present an opportunity to earn market linked returns|
Documents Required to Purchase ULIP
- Duly filled in claim form
- Policy documents
- Medical certificate
- Photo ID and address proof of the claimant
- Police FIR and post mortem report for accidental death
- For death due to illness, certificate and medical records from the doctor/hospital.
How to Choose the Best ULIP plans in India?
ULIP is a much sought after investment option for those with long term financial plans to grow their wealth and ensure financial security of their family in case of untimely death. There are many ULIP products available in the market Here are some key factors to keep in mind that will help you choose the best ULIP plan as per your financial status and risk appetite
1. Determine your goals – It is very important to analyze your investment goals before finalizing the ULIP plan you want to buy. Multiple fund options to choose from to allow investors to research and analyze their investment amount and insurance goals to zero in on the best plan. An aggressive ULIP plan or a conservative plan that invests in low-risk debt funds depends on the financial goals of the investor.
2. Identify insurance objectives- ULIP is a long-term investment so you should identify your insurance objectives and choose the plan that helps you fulfill them. To get the most out of the unit linked insurance plan you plan to buy, it is essential to understand the different plans. Clarity of investment and insurance objectives plays an important role in choosing a plan that is in line with your financial goals and provides financial security to the family in case of untimely death of the policyholder.
3. Understand the features and benefits- Different plans offer different features and benefits. One should be well versed with the features and benefits offered by the plans available in the market which help in meeting their financial goals. If you have a clear understanding of the pros and cons of various plans, it becomes easier to choose the one that suits your needs.
4. Claim Settlement Ratio- One of the major factors to be considered while choosing a ULIP plan is the claim settlement ratio of the insurance company. Claim settlement ratio shows the percentage of claims settled by a company out of total claims received. The higher the percentage, the higher the credibility of the insurer.
Types of ULIP Plans
ULIP is 2 type such as:
- Classification by Purpose
- Classification by Death Benefits
Classification by Purpose
ULIP for Retirement
In this plan, you have to make payments during your tenure with your job, which automatically accumulates into a corpus amount, which is paid annually to the policyholder after retirement.
ULIP for wealth accumulation:
This plan basically accumulates your wealth over a period of time for those who plan for them in their twenties and early thirties and advises them to invest in these plans so they also get the flexibility to fund their future financial goals.
ULIP for Child Education:
As a parent, you want to make sure that any unforeseen event does not affect your child’s overall education under any circumstances. There are many ULIP plans that provide money in small installments on major events in your children’s lives to ensure that no unexpected events disrupt their lives in any way.
ULIP for health benefits: Along with some general benefits, ULIPS provides efficient financing for medical expenses
1 Type ULIP Plan
- In case of death of any policyholder, the nominee gets a death benefit that is equal to the sum assured or the fund value by the insurance company.
- The mortality charge in Type 1 ULIPs tends to decrease every year as the amount of risk decreases The amount at risk is the difference between the accumulated fund value and the sum assured under the policy In other words, it is paid by an insurance company out of its own pocket in case of death of the policyholder
- To understand this with the help of an example Suppose, the insured takes a ULIP plan and assures Rs 50 lakhs he has paid a premium for 7 years and the fund value has now increased to Rs. 28 lakh In the event of death of the policyholder, the beneficiary will get Rs. 50 lakhs, the higher the sum assured (Rs. 50 lakhs) or the fund value (Rs. 28 lakhs).
2 Type ULIP Plan
- When a policyholder dies, the death benefit received by the nominee in the case of Type 2 ULIP is equal to the sum assured plus value. One thing to note is that the premium for Type 2 plans is higher than Type 1 ULIP plans A Type 2 ULIP plan also considers mortality with each policy year as the risk of death increases with age.
- As mentioned above, let us see an example to understand the concept better Taking the above scenario where the insured has taken a ULIP plan with a sum assured of Rs. 50 lakhs and the policyholder has paid the premium for 7 years so that the fund value is now Rs. 28 lakh In case of death of the policyholder, the beneficiary or nominee will get Rs. 78 lakhs, ie sum assured (Rs. 50 lakhs) and fund value (Rs. 28 lakhs)
ULIP Insurance claim
The below documents would be required:
- Completely filled claim form
- Death certificate
- Identity proof of beneficiary/beneficiaries
- Age proof of the policyholder
- Life insurance policy details
- Assignment deeds
- Legal evidence of title in case the policy is not nominated
- Medical reports and doctor’s certificate
- Post-mortem report
- Police inquiry report
The insurance providers would investigate the genuineness of the claim and respond about the settlement. In case of incomplete documentation, the insurance company would raise a requirement and inform the policyholders nominee.
How to File a Claim on Death?
In case of the policyholder’s unfortunate death, the family members/beneficiaries/nominees must inform the insurer as soon as possible. Delaying things will only make it difficult at the time of claim settlement. You can do the same via:
Online mode – Visit the official website of the insurance company and intimate a claim.
Phone Banking – Contact the insurance company via phone banking or email.
Documents required for claim
Make sure to provide all the original documents.
- Dully filled claim form, which the insurer has provided you
- Medical history of the patient
- Payment bills and receipt
- Discharge paper or summary
- Investigation reports and bills along with doctor’s prescription
- Diagnostics reports and bills supported by doctor’s prescription
You may also need some other documents if required.