Electronic and digital transactions are clearly becoming the top choice in the insurance sector. After health, vehicle and other insurance sectors, many companies have now introduced even the United Linked Insurance Plans (ULIPs) in the cyber space.
What are ULIPs?
ULIPS are investment schemes that carry the benefits of insurance along with investment in money markets. The premium paid for these policies can be invested in either of the following streams:
- As a life insurance cover.
- Investment in any of the money market instruments like equity, debt fund, balanced fund and so on.
The value of the fund is the NAV (Net Asset Value) of all the funds. On maturity, this value is paid out and on death, the sum assured is paid to the insured.
Online ULIPs are ULIP policies that companies sell online. Online ULIPs are cheaper than those sold by distribution or agents as there is the absence of middle man and commission. This means there are no premium allocation charges and all your premium is getting invested. This brings about higher value at maturity of the invested funds.
Features of ULIPs
The following are the general features of ULIPs:
Types of Funds
The key feature of ULIPs is that the investor gets to choose the fund he wants to invest in. They may be:
- Equity Funds
These involve investment in equity stocks and related instruments. This is an aggressive investment strategy and hence carries a high level of risk as well as high return potential.
- Debt Funds
Debt Funds follow a more conservative investment mechanism. They allow investing in debt, fixed and flexible bonds. They carry minimal risk as well as generate less returns.
- Balanced Funds
Those investors who wish to take on the medium risk strategy, that is lower than equity and higher the debt fund choose balanced funds. These funds are a combination of debt and equity funds, follow a moderate investment strategy, carry moderate risks and generate moderate returns.
- Life Coverage
ULIPs are basically insurance plans and hence have a coverage as a percentage of the premium. In the event of death, the higher of the sum assured or the fund value is paid out.
- Premium Charges
The premiums paid would be subject to some charges before they are invested in any fund. These include premium allocation costs, fund management charges, administration charges and so on that are deducted periodically as per terms of the policy.
These premium charges are absent if you purchase the ULIP online.
- Switching Funds
There is a switching facility in ULIPs by which you can transfer investment from one fund to another. If your strategy changes during the tenure of the plan, you have the option to change the fund through this free switching facility up to a certain extent.
- Partial Withdrawal
The unique feature of ULIP not in other insurance plans is the partial withdrawal feature. In regular online ULIPs, the investor can withdraw the fund partially for any financial needs. This withdrawal can be made after initial 5 years of the plan and limited number of withdrawals are free of cost.
- Top-Up Feature
ULIPs, both regular and online provide the facility of making further investments in the existing plan through the top-up premium feature. The investor can use the surplus funds over and above the premium for the top up investment and enjoy the good returns.
Benefits of ULIPs (Online and Regular)
ULIPS offer flexibility in the choice of plan as well as the number of plans for investment. You may invest 100% of the premium of your policy in any of the funds or even allocate additional amounts later if necessary. This flexibility is unique to ULIPs.
The other choice ULIP offers is the fund choice based on your risk appetite and profile. For instance, the investment strategy could be based on life stage, duration of investment, or self-managed strategy where you choose where to allocate your funds.
Achieving long-term Goals
For long-term goals like purchasing property, vehicle, starting a business and so on, ULIPs are the ideal investment choice as they provide better returns in the longer run. For instance, if you decide to exit from your policy after 5 years, you will get a good amount when compared to that from regular savings or fixed deposits in a bank.
All investment funds do not provide tax benefit. Since ULIP is also an insurance policy, it has tax benefits. The premiums paid are exempt from tax under section 80C. All payout amounts received are tax free under section 80D of the income tax act.
ULIP is essentially a life insurance policy which also is a good investment option. Hence it provides life cover for the insured and his family in times of need.
Basically, online ULIP is the best option if you want to combine the benefit of return from investment as well as life insurance cover in one scheme. Purchasing ULIP online is cost-effective as it is exempt from all premium charges.