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Everything You Need to Know About ULIP Premiums

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Everything You Need to Know About ULIP Premiums
July 18, 2023

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

Most young Indians today understand the importance of planning for the future. They start saving and investing right from the time they start earning. Unit-Linked Insurance Plans (ULIPs) have become one of the most popular financial tools in the market. These unique policies offer investment opportunities while providing the financial safety net of life insurance coverage. Every good investment starts with understanding the costs. Let's better understand everything you need to know about your ULIP premium.

Premium Allocation Charges

Premium allocation charges are the fees insurance companies charge the policyholder for investing in a ULIP. These charges are levied on the ULIP premium amount and can vary between insurers. Premium allocation charges are deducted upfront from the premium paid, and the remaining amount gets invested in the fund chosen by the policyholder.

Premium allocation charges typically range between 1% to 4% of the premium amount, depending on the insurance company and the policy terms.

Taxation

ULIPs offer tax benefits to the policyholder under Section 80C# of the Income Tax Act, 1961. The premiums paid towards a ULIP policy are tax-deductible up to a maximum limit of Rs. 1.5 lakh per annum.

Proceeds received on surrender/partial withdrawal/maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D) i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

In addition to the above, for policies issued after 1st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.

Income from rest of the policies exceeding the mentioned limit will be chargeable as capital gains.

Death proceeds are also exempt from tax for all ULIP plans.

Top-up Premiums

Top-up premiums are additional premiums policyholders can pay towards a ULIP policy after the initial payment. These top-up premiums are invested in the same funds as the regular premiums, allowing policyholders to increase their investment and wealth creation.

Top-up premiums are subject to premium allocation charges. The policyholder can make these payments as and when they wish. The minimum top-up premium amount and the maximum number of top-up premiums allowed vary between insurers and policy terms.

Premium Redirection

Premium redirection is a feature that allows the policyholder to change the allocation of future premiums between different funds in a ULIP policy. Premium redirection helps when policyholders want to invest in other funds due to market conditions, financial goals, or risk appetite.

Premium redirection is a flexible feature that allows the policyholder to switch between funds without surrendering the policy. However, premium redirection is subject to certain restrictions, such as the number of times the policyholder can make changes.

Understanding your ULIP premium and cost helps you make informed investment decisions. Premium allocation charges, taxation, top-up premiums, and premium redirection are some of the crucial features of a ULIP premium that every policyholder should be aware of. You can consult a financial advisor or insurance expert to better understand the terms, charges and benefits of ULIPs before investing. ULIPs provide long-term wealth creation opportunities while securing your family's finances with life coverage. Evaluate all your investment options before selecting a plan based on your investment goals and risk appetite.

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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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We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

Disclaimer

# Subject to conditions specified u/s 80C and u/s 10(10D) of the Income Tax Act, 1961.

The afore stated views are based on the current Income-tax law. 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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