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Current Trends in ULIP Investment in 2023

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Current Trends in ULIP Investment in 2023
July 18, 2023

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Most young investors today are familiar with Unit-Linked Insurance Plans. These popular policies offer the benefit of investment options while providing life coverage. ULIPs have become the go-to investment option for individuals who want to achieve long-term financial goals. Over the years, ULIPs have undergone a few changes to meet the evolving needs of investors. In 2023, new trends may shape the ULIP investment landscape in India. Let's better understand the ULIP investment trends for 2023.

Types of ULIP Plans

Before discussing the trends, let's better understand the types of ULIPs available. There are two types of premiums based on the premium-paying frequency:

Single Premium ULIPs

As the name suggests, single premium ULIPs require only one lump-sum payment at the time of investment.

Regular Premium ULIPs

These plans require premium payments at regular intervals. You can pay the premium monthly, quarterly, biannually or annually. Most investors opt for regular premium ULIPs since they provide more flexibility and enable individuals to invest small amounts over an extended period. These plans allow fund switches to help investors take advantage of market fluctuations and align their investments to their financial goals.

Currently, life-stage ULIPs have become a popular option in India. These plans assume that investors like to reduce their risk exposure over time. Life-stage ULIPs change the asset allocation over the years to suit the investor's changing risk appetite. It becomes more conservative as the investment reaches maturity.

Latest Trends in ULIP Investment

Return of Mortality Charges (ROMC)

The premium you pay for your ULIP gets split into two. A small portion, known as the mortality charge, goes towards providing you with life insurance. Today, insurance companies offer ULIPs with a return of mortality charge option. ROMC plans help investors get the mortality charges on maturity, making ULIPs highly cost-effective.

Tax on Capital Gains

Since 2021, ULIP investors need to pay capital gains  tax at the time of receiving payouts. According to the rules, ULIP investments held for over 12 months, where premium paid during the term of policy exceeds Rs 2,50,000 for any of the previous year will attract a 10% tax on all gains over INR 1 lakh as per Section 112A(subject to conditions mentioned in the said section)

Investments that last less than a year where premium paid exceeds 2,50,000 shall attract a short-term capital gains tax of 15% as per Section 111A (subject to conditions mentioned in the said section)

However, in case any sum is received on death of a person, then no capital gain is applicable on such sum received.

These taxes are applicable on plans purchased on or after 1st February 2021.

Recent Changes in ULIP Policy

In 2023, the Insurance Regulatory and Development Authority of India (IRDAI) introduced several changes to the ULIP policy to increase transparency and safeguard the interests of investors. The changes include:

Reduction in ULIP Charges

The IRDAI has reduced the maximum charges insurance companies can levy to make ULIPs more cost-effective. Premium allocation charges were reduced from 15% to 10%. Equity-oriented funds have a 1.35% fund management cap, while debt-oriented funds have a 1.10% cap.

Standardisation of ULIPs

To make it easier for investors to understand and compare different ULIP investment products, IRDAI has standardised the features and benefits of ULIPs. Insurance companies must offer a standard product with the same features and benefits across all companies.

Introduction of Saral Jeevan Bima

IRDAI has introduced a new ULIP product, 'Saral Jeevan Bima,' a simple, cost-effective, and easy-to-understand ULIP plan.

Standardisation of ULIP Charges

The IRDAI has standardised ULIP charges, making it easier for customers to understand the costs associated with their policy. Insurers must disclose all charges upfront, including premium allocation charges, fund management fees, and policy administration charges.

Wrapping Up

ULIPs have become increasingly popular over the years, as they offer the dual benefit of investment and insurance. The latest trends in ULIP investment in 2023 include the introduction of return of mortality charge, tax on capital gains, and the preference for life-stage ULIPs. Investors must understand ULIPs before investing. The IRDAI has helped standardise costs and offerings, making it easier to find the ideal policy for your long-term financial goals. Read the terms and conditions carefully and select a plan that suits your current financial situation, risk appetite, and future needs.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Disclaimer

The afore stated views are based on the current Income-tax law and are subject to conditions specified u/s 10(10D), u/s 111A and u/s 112A of the Income Tax Act, 1961

Tax Laws are also subject to change from time to time. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

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