Unit Linked Insurance Plans (ULIP)

What is the full form of ULIP?

The term ULIP stands for Unit Linked Insurance Plan. It is a unique financial product that combines the elements of both insurance and market-linked investments.

A ULIP or a Unit Linked Insurance Plan is a type of life insurance policy. Like all life insurance plans, a ULIP also offers death benefits in case of the insured person’s demise.

What is the right time to invest in ULIPs?

There is no perfect time to invest in ULIPs. You can invest in them at any point in your life. However, the earlier you start investing in them, the better, since you get to fully utilize the power of compounding to your advantage.

What is a ULIP policy?

A ULIP, also known as a Unit Linked Insurance Plan, is a financial product that offers the dual benefits of insurance and investment. ULIPs offer the option to invest in different market-linked funds that help you generate returns for your long-term life goals. 

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.

Are ULIPs Safe?

ULIPs are a long term investment and yield considerable returns when you stay invested for long-term. It is important to choose the 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 trial period or free look period of a ULIP?

The trial period or 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 best 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 best 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 a ULIP NAV?

The NAV, also known as the Net Asset Value, is the value of an individual unit of a ULIP fund. Since ULIPs invest in market-linked funds, the ULIP NAV is recalculated at the end of every trading session.

Are there different kinds of equity funds available?

Yes, ULIPs offer different kinds of equity funds for the policyholder to choose from. These funds are known as Large Cap, Mid Cap, Small Cap & Multi/Flexi Cap funds based on their investment in across market cap. Investors can choose the equity funds as per their goal and risk profile.

Are there single premium ULIPs?

Yes, there are Unit Linked Insurance Plans that offer the single premium feature. In single premiums, you need to pay a lump sum amount as the premium at the time of policy purchase, instead of making regular premium payments over the policy term. Choose between single premium ULIP or regular premium ULIP as per your need and investment capacity to churn out the appropriate benefits.

What types of payment do we accept for an online ULIP purchase?

You can purchase a Unit Linked Insurance Plan by paying the premium through any of the different payment modes available, such as net banking, credit cards, debit cards, or online wallets etc. 

What is a trigger-based portfolio strategy in a ULIP?

Trigger-based portfolio strategy helps you in ‘Securing your Gains’ and maintain your exposure between debt and equity. This strategy is available with some Bajaj Allianz Life insurance products where your portfolio consists of an initial allocation of 75% to equity and 25% to debt. At specific trigger point(s) the allocation is checked and automatically adjusted to the initial allocation.

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 makes ULIPs a suitable investment instrument for wealth generation?

Unit Linked Insurance Plans offer market-linked returns. Bajaj Allianz Life ULIPs have provided returns of about 9-14%**^[3], which are 5 year compounded annualized growth rate (CAGR).When invested with a long term horizon and in appropriate fund types, basis risk appetite, ULIPs can give expected returns and hence are considered an suitable investment for long term investors.

What are the risks of a Unit Linked Insurance Plan?

Although there are several ULIP Benefits that you can enjoy by investing in a Unit Linked Insurance Plan, there are also some risks that you should know about. Since ULIPs invest in market-linked instruments, the risk of market volatility and price movements is inherent to your ULIP investments.

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.

Which investor class are ULIPs most suited for?

ULIPs are suitable for a wide range of investors, no matter their risk tolerance, because they allow investments in equity, debt and several other market-linked funds. So, risk-averse investors can choose ULIP funds that invest in debt, while those who can tolerate more risk can pick equity funds.

Which organizations issue ULIPs?

Unit Linked Insurance Plans are issued by life insurance companies in India. You can choose a life insurance company with good fund performance record and claim settlement ratio to buy your ULIP from.

Which ULIP plan is the best?

The best ULIPs are those that offer you the coverage you need and give you the option to invest in the market-linked funds that can help you achieve your goals. So, there is no clear cut answer to the question of what the best ULIP is. Ultimately, the right ULIP for one investor may differ from the right ULIP for another. So, compare your options to find the policy that is most suitable for your needs and goals.

Can I Stop Investing in my ULIP?

Yes, if you wish to, you can stop investing in your ULIP. However, if you surrender your policy during the lock-in period of 5 years, the life cover ceases immediately, but the surrender value is paid out only after the 5-year period is complete. If you stop investing in your policy after the lock-in period, you will receive the surrender value right away, but the benefits offered by the policy will no longer be available to you.

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 5th 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. 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.

How can I maximize my ULIP returns?

Although the exact ULIP returns depend entirely on the market movements during the tenure of your policy and the underlying fund performance, there are some tips that can help you optimize the returns as much as possible. Here is what you can do.

• Invest for the long term, preferable for the whole policy tenure
• Pay your premiums promptly
• Use the fund switching feature to make the most of market movements
• Make use of ULIP tax benefits
• Align your ULIP funds with your life goals and your risk appetite

What Are Whole Life ULIPs and Why You Should Get One?

Unit Linked Insurance Plans that provide death benefits and maturity benefits till you attain the age of 99 or 100, depending on the plan that you choose, are termed as whole life ULIPs.
One of the primary reasons why you should opt for such a plan is that it keeps your family protected for the entire period of your life. Also, thanks to such a long period of investment, you also get to optimize the returns that you receive from your investment. And finally, there’s the benefit of prolonged tax savings as well.

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. Let us look at an example to understand this better –

Say that you have invested Rs. 10,000 in an instrument today. Five years later, assume that the investment grows to Rs. 16,000. In this case, the investment has grown by Rs. 6,000. So, the absolute returns from the investment is calculated as follows –

Absolute returns = (Rs. 6,000 ÷ Rs. 10,000) x 100 = 60%

Now, in the example given above, if we were to say that the investment grew to Rs. 16,000 in three years instead of five, the absolute returns would still be 60%. Therefore, the period is of little significance when you are calculating the absolute returns. Effectively, what matters is how much your investment has grown.

What is an Endowment Plan in Insurance?

An endowment plan is a life insurance policy that not only covers the life of the policyholder but also pays a lump sum amount after a specific term (upon policy’s maturity) if the policyholder survives the policy term.

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.

What is the difference between online ULIPs and offline ULIPs?

There are quite a few differences between online and offline ULIPs Firstly, online ULIPs tend to be more cost effective compared to offline ULIPs. This has to do with the fact that online plans don’t involve any intermediaries or agents, which helps keep the costs lower.

What is the Difference Between a Life Insurance Plan and an Annuity Plan?

A life insurance policy is designed to offer a lump sum payout to the family members of a policyholder in the case of the death of the said policyholder during the tenure of the plan. An annuity plan, on the other hand, is designed to provide policyholders with a regular source of income until the end of their lifetime

Will there be a tax implication at the time of switching for policies purchased before 1 February 2021?

No, for policies purchased before 1 February, 2021 there will be no tax implication at the time of switching provided the conditions under Section 10(10D) of the Income Tax Act 1961 are satisfied.

Will the sum assured paid on the death of the life insured also be taxed?

No, in case of the policyholder's death, the money that his/her nominee receives will not be taxed.

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

The 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 tax implications will be same for NRI customers?

Yes. The same provisions would be applicable for NRI customer for such high value ULIPs. Earlier TDS was applicable at minimum 30% plus surcharge and cess basis the respective slab rate of income. Basis the amendments TDS would be applicable under Section 195 as per applicable rates (10%/15%/20% plus surcharge & cess) depending on the nature of capital assets (Refer point 29 below). Income from such policy will be taxed as a capital gain. Double Tax Avoidance Agreement (DTAA) benefit if available can be obtained by the policyholder subject to the necessary documentation.

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.