Insurance plans are the best way to build financial security for our family. But due to the rising inflation costs, improvised lifestyle, growing aspirations of people, and ever-increasing needs, it becomes imperative to have a steady income that apart from insurance to match the pace of the rising living standards. We all want to see our money grow each day just like a money plant.
With this though in mind, insurance companies have introduced Unit Linked Insurance Plan (ULIPs). ULIPs not only offer insurance cover but give assured returns. ULIPs are just like Mutual funds, where investors purchase units at their Net Asset Value (NAV) from a fund, along with added advantage of having a life cover from an insurance company.
That’s, why the term linked is involved. Your insurance component is linked to a ULIP fund. Insurance companies promise you guaranteed ULIP NAV returns. But it is advisable to talk to a financial expert and understand the conceptualization of a ULIP NAV and then go for investments.
ULIP NAV is calculated by adding the ULIP funds for a particular day and deducting charges like management fees, operating expenses, marketing costs and other expenses incurred. Net Asset Value represents the value of the total holding of the ULIP fund. It is divided by the number of units held by investors. This represents the NAV per unit.
Most people think higher ULIP NAV would include investment in expensive funds and often choose to skip it from the investment agenda. They opt for an investment with a lower NAV just to save costs on premiums. However, let's understand that the NAV is merely the book value of the ULIP fund investment minus the related expenses. It only represents the fair price of the asset should the mutual liquate the investments on a particular day. Investors don’t have to be worried about the price being too low or high. Instead, the significance of your investment should not be the basis for choosing the right ULIP fund. Therefore, a higher or lower ULIP NAV holds no importance and should not be the basis for identifying the right ULIP fund.
Buying life insurance plans is not a luxury but a necessity of today. It ensures that the financial future of your family is secured, if at any point of time anything unfortunate happens to you. With so many schemes and policies available in the market, it would be in your best interests to take advantage of them and avail the benefits they provide.
Out of hundreds of insurance policies and plans available, some include plain life cover while others offer maturity benefits.
Insurance companies have also introduced Unit-Linked Insurance Plans for its consumers which offer dual benefits. A part of the premium goes for life cover and the rest of it gets invested in market-based funds such as equity, debt or balanced funds. As per the income source and risk appetite you can choose a suitable ULIP.
Some people simply look at providing a risk cover to their loved ones in case of unfortunate incidence, while others may take a step ahead and invest the money in markets to extract higher returns. It is for such customers that ULIP stands as an ideal investment tool. In case of death, the dependents will receive the insurance cover, and also returns on the money invested in the markets by way of premium. While traditional ULIPs are sold actively in offline space, online ULIPsare now gains popularity amongst the people. Life insurance companies have leveraged the power of the internet and introduced online ULIPsthat are easy to buy at extremely cost-efficient way. Online ULIP policies lay down a convenient path to participate in equity markets while giving life cover at the same time.
Some benefits of buying ULIPs online:
Offline ULIPs have charges such as premium allocation charge, fund management charge, policy administration, policy discontinuance charge, etc. Online ULIPs are available in the market with no charges for premium allocation, policy administration and discontinuance except 1.35% of fund management charge per annum and mortality charge on the fund value of the customer in order to provide the life cover. Thus, the customer can save more on purchasing a policy online.
Online ULIP offer multiple fund options that give better exposure to equity in a single plan. It means the customer will get the full flexibility to choose among the investment funds and the allocation value as per their risk appetite. Besides, insurers offer a couple of free switches and premium redirection in each policy year. Even if the customer exceeds the set of free switches the charges will still be nominal.
The premiums paid, earnings received from the fund and the fund value at maturity of ULIPs are tax-free. These tax benefits effectively increase your return on investments. The premiums paid towards the policy by a customer are eligible for tax benefits under Section 80C/Section 10(10) D of the Income Tax Act, 1961, subject to the conditions/limits specified therein.
Apart from the returns on investment, ULIP also provides suitable life cover. It means in case of an unfortunate demise of the policyholder during the policy tenure, a minimum lump sum benefit will be payable to the nominee. So, it provides a financial security right from day one.