What are the Current Trends in ULIP Investment in 2023?

Did you know that your entire premium amount for a ULIP is invested in different market-linked funds of your choice while charges for your life cover get deducted across the policy’s duration? ULIP investments are one-of-a-kind in terms of their structure. On the one hand, you have the assurance of a life insurance policy that will pay benefits in the case of your death. Simultaneously, you may increase your wealth by earning market-linked returns on your assets.

Types of ULIP Plans

Unit Linked Insurance Plans are divided into three categories based on their ability to generate returns. These categories are created primarily to optimize your ULIP returns on investment. Some of the numerous sorts of ULIP plans that concentrate on market-linked wealth generation are listed and discussed below.

● Single premium and regular premium ULIPs –

A single premium ULIP plan, as the name implies, only needs a single premium payment at the time of purchase. A regular premium ULIP, on the other hand, enables you to pay premiums on a regular basis throughout the plan's life, from purchase through maturity. You may pay your premiums in monthly, quarterly, semi-annual, or yearly installments, depending on your financial condition.

● Life-staged ULIPs –

These Unit Linked Insurance Plans are based on the notion that as investors become older, their risk-taking capacity decreases. As a result, a portion of the premium is invested in equity funds, while the remainder is invested in debt funds. Initially, equity funds rather than debt funds receives a larger share of investment. These forms of ULIPs gradually raise the amount of debt fund proportion and reduce the proportion in equity funds as the investor becomes older. By minimizing the risk, this effectively changes the emphasis to investment returns as per risk here.

Latest Trends in ULIP Plans

● Return of mortality charge (ROMC) –

One of the primary worries with ULIP investments in the past was that the life insurance coverage would detract from investment earnings. Insurers who offered a refund of mortality costs addressed this problem. The expenses that your insurer deducts for providing you with life insurance are known as mortality charges. Many insurers have started a practice of adding back the whole amount of mortality costs subtracted during the policy term to the fund value at maturity.

● Tax on capital gains –

A Long-Term Capital Gains Tax on stocks and equities funds was implemented in Budget 2018. From Budget 2021, any gain from ULIP policy issued on or after 1 February 2021 with premium greater than rs. 2.50 lakhs are taxable as capital gain. Any long-term capital gains above ₹1 lakh are considered taxable @ 10% while short-term capital gains on ‘higher premium’ ULIPs are taxed at a flat rate of 15% if ULIP is equity oriented ULIP. However, if the premium paid for all the ULIPs are within ₹2.5 lakhs for a financial year, the proceeds are tax-free subject to satisfaction of conditions mentioned in Section 10(10D) of Income Tax Act.

Recent Changes in ULIP Policy

Following modifications to income tax and securities transaction tax laws, the Centre announced new rules for calculating capital gains tax on the profits of high-premium unit-linked insurance plans (ULIPs). Capital gains on ULIPs with annual premiums of more than Rs 2.5 lakh will be assessed on payments received by the policyholder, according to latest circular issued by by the Central Board of Direct Taxes.

The Center said in the Finance Act of 2021 that high-net-worth persons were taking advantage of tax incentives intended for modest savers via ULIPs. Allowing such exclusions in insurance with high premiums goes against the aim of the tax advantage, according to the Union finance minister. As a result, the government proposed taxing capital gains on ULIPs with yearly premiums exceeding Rs 2.5 lakh.

Wrapping Up

Bajaj Allianz Life plans offer a range of possibilities, including distinct fund alternatives, and different portfolio strategies to give you flexibility to fit a plan to your needs. The best thing is that you can get started with this investing package with only a few mouse clicks.

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