Unit Linked Insurance Plans (ULIP)

When should you invest in ULIP?

While you can invest in ULIP at any stage of your life, it is preferred to invest as early as possible. Investing now will have an impact on ULIP returns over a long term. The earlier you invest in ULIP, the greater are the advantages like:

• You can benefit from the Power of Compounding, if you decide to continue to stay invested for longer time
• A long investment horizon ensures a Higher Corpus
• Higher Potential of Risk Appetite
• Systematic Savings

What Should You Keep in Mind While Investing in ULIP?

Before you go ahead with your investment in a ULIP, there are 5 key things that you should always keep in mind.

• ULIP investments involve a host of different ULIP fees and charges.
• The solvency ratio and claim-settlement ratio of the insurer is very important.
• Opt for funds based on your risk appetite and goals.
• Compare multiple ULIPs and choose the one that fits your needs and requirements.
• ULIPs are suitable for the long-term, so it is advantageous to remain invested over the whole policy tenure.

What is AUM?

AUM stands for Assets Under Management. It is the total market value of the pooled corpus which is being managed by the insurance company on behalf of the policyholders. For instance, if 1000 investors each invest Rs. 1000 in a fund, the total pooled corpus is Rs. 10,00,000. If the market value of the corpus increases to Rs.12,00,000, the AUM would be Rs. 12 lakhs.

How to minimize risk with ULIP?

ULIPs offer debt funds which have a low risk profile. So, if you are risk averse, you can invest in debt funds for minimizing the volatility risks. Alternatively, if you invest in equity funds and the equity market starts falling, you can switch to debt funds to protect your returns. Then, when the equity market rises again, you can switch back to the equity funds. 

You can also redirect your premium to debt funds in falling markets to minimize risks

How are units allotted in ULIP?

The units are allotted based on the Net Asset Value (NAV) of the fund that you choose. First, the allocation charges would be deducted from the premium and the remaining premium would be divided by the NAV to allocate the relevant number of units.

How can I track my ULIP fund value?

You can visit the insurance company and check the performance** of the selected funds to track your ULIP fund value. You can also check your policy fund value on the Insurer’s website and see how your investment is performing.

Is GST applicable on ULIPs?

GST is applicable on the premium paid for the ULIP plan. However, GST is applied on the different charges levied under the ULIP plan, i.e., premium allocation chare, fund management charge, mortality charge, etc. GST is applicable at 18%.

Are ULIPs Safe?

ULIPs are a long term investment and have the potential to yield considerable returns when you stay invested for long-term. It is important to choose the market-linked funds you want to invest in wisely, basis your risk appetite, age and financial portfolio in order to mitigate the risks involved. However, since ULIPs are market linked, the returns depend on the market movements and fluctuations.

What is the maximum duration of the free look period of a ULIP?

The free look period of a Unit Linked Insurance Plan is typically 15 days from the date of receiving the policy document. In the case of electronic or online ULIPs, the free look period is 30 days. If you are not satisfied with the policy, you can cancel it during this period without paying any additional discontinuance charges. However, the mortality charges deducted, expenses incurred on medical examination and stamp duty charges will not be refunded.

What is a regular premium policy?

In a regular premium policy, the policyholder is required to pay premiums regularly at the chosen intervals. At the time of purchase, policyholders may choose to make premium payments on a monthly, quarterly, semi-annual, or annual basis. The premium payment term is the same as the policy term in regular premium ULIPs.

What is the suitable way to choose a ULIP?

Choosing a ULIP plan that fits your needs and requirements perfectly is crucial to be able to satisfy your goals. Here’s how you can make sure that you choose a ULIP plan that’s suitable  for you. 

• Always compare multiple ULIPs to see which one fits your goals better
• Select a ULIP that levies low fees and charges
• Choose a ULIP fund option that’s appropriate for your risk appetite
• Opt for the right amount of insurance coverage

What is the wheel of life portfolio strategy in a ULIP?

Wheel of life ensures that a balance is maintained between your ‘years to maturity’ and level of risk on your investments, in a nutshell higher the age lower is the risk exposure. This strategy is available with some Bajaj Allianz Life insurance products, to align your investment risk across the various stages of your life, initially, when you can tolerate higher risk versus later years where you want to safeguard your investment returns

What is the death benefit payable under a ULIP policy?

A ULIP policy is essentially a life cover. So, if the insured person passes away during the policy term, the insurance provider pays out the death benefits as per the terms and conditions of the plan, to the nominee mentioned in the policy. 

What is the maximum amount of partial withdrawal in ULIPs?

The exact limit on the maximum amount of partial withdrawals in a Unit Linked Insurance Plan varies from one insurer to another, as well as from one policy to another. So, it is essential to read the terms and conditions of your policy before you make your purchase, to understand the limits on the partial withdrawal better. 

When is the right time to switch your ULIP fund?

There is no specific right time to make fund switches in your ULIPs. Typically, a switch in your ULIP funds may be necessary in the following cases. 

• If the market moves significantly in either direction
• If you have achieved an existing life goal
• If you have a new life goal you need to invest for
• If the policy maturity is approaching

When will I receive a fund booster?

A fund booster is a ULIP benefit offered under some of the Bajaj Allianz Life insurance products that enhances the amount you receive at the time of maturity. This is an incentive for paying your premiums regularly throughout the policy term and stay invested till the end of the policy. If your ULIP offers this feature, and if you qualify for it, you will receive the fund booster on maturity, subject to the conditions mentioned therein under the plan. 

Can ULIPs give high returns?

ULIPs have the potential to generate returns based on the performance of the market-linked securities they invest in, market conditions and many other factors. To truly enjoy the benefit of these plans, it is advisable to remain invested over the long term, or over the entire tenure of the policy.

Can I get my premiums back if I am dissatisfied with a ULIP policy?

That depends on when you surrender or cancel your policy. If you do so within the free look period, your insurer will typically refund the premium after deducting any charges they may have incurred, for medical test, mortality charges and stamp duty charges. On the other hand, if you surrender your policy after the free look period, you will receive the surrender value of the policy, if any. This is calculated as the total premiums paid multiplied by the surrender value factor, net of surrender charges and any other deductions, if any. There is no surrender charge after the 5^th policy year.

Can I invest more than the regular premium for ULIP?

If you wish to invest more than the regular premium in your ULIP, you can make use of the top-up feature in your policy. As per this feature, you can invest a top-up premium in your policy, over and above the regular premium. This comes in handy if you have received a bonus or a windfall and want to use the funds for investment purposes, or if you want to take advantage of market movements and increase your investment in a particular ULIP fund.

Can I make a partial withdrawal from my ULIP?

Yes, you can. Unit Linked Insurance Plans come with many beneficial features. One of these ULIP benefits is the partial withdrawal feature. You can use this feature to withdraw a portion of your investments after the lock-in period of 5 years. This feature can be availed subject to policy terms & conditions. When the question of ‘Can we withdraw from ULIP?’ arises, it is worth considering if the withdrawal is indeed urgent or necessary.

Can NRIs Buy ULIPs in India?

Yes, Non-Resident Indians (NRIs) can buy Unit Linked Insurance Plans in India.

What happens if payment of ULIP premiums is discontinued?

If you stop paying the premiums after expiry of the lock-in period, you can convert the policy to paid-up and withdraw the funds that remain in the ULIP. However, if you stop paying the premiums within the lock-in period of a ULIP, your policy will automatically be labelled as a discontinued policy and you will cease to receive all benefits under the plan. You can either revive the policy by paying the missed premium(s) or surrender it. If you surrender the policy before the expiry of the lock-in period, the insurance cover will cease to exist and, you will be allowed to withdraw your funds after deduction of appropriate charges, only after the lock-in period ends.

What is the meaning of absolute return of a ULIP Fund?

The returns that your ULIP fund investments generate over a specified period of time is termed as absolute returns. It is the difference between the initial value of the investment, and the final value of that investment, over a particular time. Absolute returns are calculated on the Net Asset Value (NAV) of a ULIP. 

What Is the Auto Transfer Portfolio Strategy in A ULIP?

According to the auto transfer portfolio strategy, offered by some Bajaj Allianz Life insurance products, the initial premium payments that you make will be invested in low-risk funds such as bond funds or liquid funds. And at the start of every month, a portion of your fund value will be switched over to other high risk funds chosen by you automatically. This gives you the chance to earn an enhanced return on your investment by taking on moderate levels of risk.

What is the meaning of fund value in ULIPs?

When you make ULIP premium payments, the same are used to purchase units of market-linked funds chosen by you at the time of purchase. The fund value is the total value of all of the units of funds that you own multiplied by the Net Asset Value (NAV) of the fund.

What is Investor Selectable Portfolio Strategy in A ULIP?

The investor selectable portfolio strategy under some Bajaj Allianz Life insurance plans, allows you to choose the kind of ULIP funds that you wish to invest in. It allows you to switch your allocations between funds as well. As per this strategy, you can even choose to invest in one fund or in multiple different funds in a proportion of your choice.

How is the threshold of Rs.2.5 lakhs for ULIP to be determined?

The annual premium threshold of Rs.2.5 lakhs should be inclusive of all premiums for ULIPs including top up premium, add on premium, etc. purchased after 1 Feb 2021.

Whether ULIPs with annual premium less than Rs.2,50,000 will be exempt?

Yes, subject to satisfaction of other conditions in section 10(10D) of the Income Tax Act 1961, including the condition of sum assured being at least 10 times the annualized premium.

Whether TDS under section 194DA/195 continues to be triggered for high value ULIPs?

Yes, since ULIPs have been defined as life insurance policy, maturity proceeds for high value ULIPs will be subject to TDS @ 5% on net basis for payments to residents under section 194DA and at applicable rates for payments to non-residents under section 195.

Whether single premium policies having premium in excess of Rs2,50,000 will be taxable?

Yes, since the premium payable in year 1 of the policy exceeds Rs2,50,000, the policy shall not qualify for exemption under section 10(10D) of Income Tax Act 1961.