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Are ULIP plans good

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Are ULIP Plans Good?


May 28, 2020

By : Bajaj Allianz Life

Yes, ULIPs are one of the preferred investment options that provide a variety of advantages to the investor. If you’re on the fence about parking your funds in a ULIP plan, you’re perhaps wondering: why should I Invest in ULIP? To help resolve this dilemma, it’s an excellent idea to get to know the many ULIP benefits you stand to gain by purchasing this investment product which further helps you move a step closer to getting your Life Goals Done.

How does a ULIP plan work?

Let’s take a quick look at how Unit Linked Insurance Plan works before getting into answering the question of “Why should I invest in ULIP?” Initially, at the time of purchase, you choose a ULIP plan that aligns with your risk profile and your financial goals. In return, you pay the insurance provider a premium. The insurance provider sets aside a part of your premium and invests the remaining in number of funds. The investment is made depending on your risk appetite. If you have a high risk capacity you can choose to invest in equity funds and if you are not willing to take too much of a risk, you can put your money in a debt fund. One can also consider balanced funds to enjoy benefits of returns without high risks. Since these investments are made to help you achieve your financial goals, you can choose funds as per your risk appetite and take a call.

Over the course of the policy’s term, the net asset value of your market-linked assets changes according to market movements. At the end of the policy’s term, you receive the capital gains from your assets as the maturity benefits under the ULIP plan. Alternatively, if you die during the duration of the ULIP, your nominee is entitled to receive the death benefit.

What are the features and benefits of a ULIP plan?

Since ULIPs are customer-centric insurance cum investment products, you can obtain a better idea of ULIP benefits by simply getting to know its features.

Here are a few features that make ULIP plans as one of the preferred option available in the market to achieve your Life Goals.

• Dual advantage of insurance and investment

ULIP plans offer the two-fold advantage of investment coupled with insurance coverage. When you invest in a ULIP, your premium is diverted into two channels, one for providing you with an insurance cover, and the other to help your capital appreciate over the course of the policy duration. Your investments are also customizable, so you can choose to invest in the equity market or debt funds (or combination of both). Thus, investing in a ULIP benefits you in two ways.

• Threefold tax advantage

ULIP benefits also extend into the tax-saving territory. Popularly referred to as EEE (exempt-exempt-exempt) investments, ULIPs offer tax benefits at all the three stages of the policy course:

o Death of the policy holder - Death benefit paid to the nominee after the death of the policyholder is tax-exempt, as per Section 10(10D) of the Income Tax Act, 1961, subject to provisions stated therein.

o Maturity of the policy - In case the policyholder survives the policy term, the pay-out received upon maturity of the ULIP plan is also exempted from tax, subject to satisfaction of conditions mentioned under Section 10(10D) of the Income Tax Act, 1961.

o Partial withdrawal - Partial withdrawal is also exempted from tax, subject to satisfaction of conditions mentioned in Section 10(10D) of the Income Tax Act, 1961.

Also, under Section 80C of the Income Tax Act, 1961, the premium paid by the policyholder towards ULIP plan is allowed as a deduction, provided the premium amount is less than equal to 10% of the sum assured, with the maximum amount allowed being Rs. 1.5 lakhs. The above mentioned ULIP tax benefits, deductions and exemptions are subject to the provisions stated in the Income Tax Act 1961, as amended from time to time.

• Fund switch facility

When investing in ULIP, you have an option to invest in equity funds, debt funds or a combination of both. To give you a great deal of flexibility and to allow you to tap into the advantage offered by market movements, ULIPs offer a fund switch facility that lets you disinvest from your existing funds and reinvest your capital in other types of ULIP funds as per your risk appetite and Life Goals planned. As we all know that asset allocation is key to maximise returns, ULIP plans give the investors the freedom to alter their risk according to market conditions which can further help them capitalize their returns on investments thus helping them get their Life Goals Done.

• Top-up options

This is another feature that allows you to take advantage of market movements. Additionally, it also lets you enjoy the benefits of increasing investments if you earn a bonus. With the surplus money in hand, you can invest in additional funds or instruments over and above your existing investment portfolio. You can also use the additional funds to increase your life cover. The good news is that this additional top-up amount is also eligible for tax benefits under the Income Tax Act 1961, subject to provisions stated therein, just like your original premium amount.


Given these benefits and features, it’s no wonder that you may stand to benefit by investing in a ULIP and you can enjoy many advantages, some of which are summarised here.

• You get a life cover

• You benefit from the rewards of a long-term investment option

• You enjoy tax benefits in the process as per provisions mentioned under the Income Tax Act, 1961

• You may maximize your returns by taking advantage of market movements by utilising the fund switching and top up features available in a ULIP

• You can get your financial and Life Goals Done

With so many benefits to offer, ULIP plans are among one of the preferred investment options available in the market for investors looking forward to achieve their Life Goals.

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**Past performance is not indicative of future performance.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.