Unit Link Insurance Plan (ULIP)
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ULIPS or Unit Linked Insurance Plans help you to serve two goals in a single product: investment and insurance. It provides you with a life cover and also lets you reap the benefits of the stock market, debt funds, or both, as the case may be.
ULIPS has come a long way since its inception in 1971. The first ULIP was introduced by the Unit Trust of India (UTI) in 1971 and then by Life Insurance Corporation (LIC) in 1989.
How Does ULIPS Work?
ULIPS are products that provide you with a combination of a life insurance policy and also an investment opportunity through a mutual fund in a single plan.
ULIPS are provided by life insurers, so your payments to these companies when you buy a ULIP plan are called ‘premiums’ as primarily ULIPS are more similar to insurance plans.
A portion of your premium is diverted towards the investment bit, which is the mutual fund portion: equity, debt, hybrid, or as the case may be.
There are fund managers who look after your investments. You are also allowed to switch between different types of funds to make the best ULIP plan for yourself.
What is the Lock-in Period of a ULIP?
A ULIP insurance plan comes with a lock-in period of five years. However, ULIP being a combination of a life insurance policy and a mutual fund, both of which are long-term investments, should be held for 15 years or more.
How Does Ulip Compare With Other Investment Options Under 80C – Comparative Analysis
S.No. | Particulars | ULIPS | ELSS | PPF |
1. | Lock-in period | Five years | Three years | 15 years |
2. | Tax benefits | 80C and returns from policy on maturity are exempt under section 10 (10D). | 80C | 80C and maturity amount is exempt from taxation too |
3. | Taxation | Gains are taxable depending on the underlying asset | Gains above Rs 1 lakh in any given financial year is taxable under LTCG at 10% | None |
4. | Underlying assets | Equity, debt and balanced | Equity | Fixed-income oriented |
5. | Risk (when compared to each other) | Highest among the lot | Not as risky as ULIPS | Considered risk-free with guaranteed returns as it is backed by the government |
6. | Charges | There are at least five charges in ULIPS: Mortality charge premium allocation charge switching charge surrender charge Policy administration charge | Expense ratio can be in the range of 1.05 to 2.25 | One-time account opening charge of Rs 100 |
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