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Table of Contents
1. What is ULIP (Unit Linked Insurance Plan)?
2. Introduction
4. Benefits of Investing in ULIPs
5. How to Choose the Best ULIP Plans?
6. Which Investor Class Are They Most Suited For?
7. How Is the ULIP Plan Structured?
8. Who Should Buy a ULIP Plan?
9 How to Maximize Returns from a ULIP?
10. What is the Lock-in Period of a ULIP?
11. Unit Linked Insurance Plans (ULIPs) vs Other Investment Options Available Under Section 80C
15. Conclusion
A Unit Linked Insurance Plan (ULIP) merges insurance coverage with investment opportunities. A portion of the premium is allocated for life insurance, while the remainder is invested in the market. This plan supports the achievement of long-term financial goals and ensures family security in the event of unforeseen circumstances.
In Unit Linked Insurance Plans (ULIP), the investments made are subject to risks associated with the capital markets. This investment risk in investment portfolio is borne by the policy holder. Thus, you should make your investment choice after considering your risk appetite and needs.
Another factor that you need to consider is your future need for funds. HDFC Standard Life offers you a variety of unit-linked insurance products to suit your goals - be it for your retirement planning, for your health, for your child's education and marriage or for investment purposes.
ULIP offers investors an opportunity to invest towards a life insurance policy and mutual fund with a single plan. The amount which you invest in ULIP is referred to as premiums. This amount is divided into two parts, one of which is invested towards debt, equity or hybrid mutual funds as per the market scenario. The other part is used to buy life coverage like any life insurance policy.
The investment part of a ULIP works similarly to mutual funds. It is invested into equities, debt or a combination of both assets; you get the option to choose a plan or switch between plans. Like mutual funds, you are assigned units in proportion to your investment. Each unit has a daily NAV (Net Asset Value) which reflects the value of the underlying assets.
Unit-linked plans are handled by professional fund managers who closely study the market movements and invest the required portion of your premium accordingly. They will again study the market movement after investing the funds and make changes as and when required.
After this policy matures, you will receive the total maturity amount which consists of an aggregate of your investments across all funds. However, in case of death of the beneficiary, the nominee will receive the higher amount from fund value, sum assured or 105% of the premium that he has paid to date.
Let's take a look at some of the ways a ULIP plan benefits you:
When you invest in a ULIP every month, you're building a habit of disciplined savings. Consistent saving is crucial for a solid long-term financial strategy. When you pay your premiums on time, you're not just building wealth for yourself; you're also safeguarding your family's financial future. It's an effective way to invest wisely and provide security for those you care about.
One of the primary benefits of a ULIP is that it combines life cover with various investment options. This means you're not just growing your wealth; you're also securing your family's financial future if something were to happen to you unexpectedly. It's a way to invest smartly while ensuring peace of mind for your loved ones.
With a ULIP, you are completely in control of your finances. You can choose to switch your funds around at any point. This means that you can move your money from equity funds to balanced and debt funds or vice-versa. Additionally, you can choose to redirect future premiums to a different fund of your choice. If you like to invest more money later, you can top-up your ULIP. Most importantly, in certain cases, you will have the opportunity to partially withdraw some of the funds from the investment for financial emergencies.
As with most other investments and life insurance products, the money you invest in your ULIP is also eligible for tax benefits. Both the premiums you pay and the returns you receive can be exempt from taxes as per Sections 80C# and 10D# of the Income Tax Act, 1961 respectively. Additionally, if you choose to move your money from one fund to another, you will not have to pay any additional tax.
The benefits of ULIP are countless. But, one of the reasons it continues to be a sought-after investment option is its growth potential. These plans allow you to invest in market instruments like debt and equity funds to grow your money. The returns you receive could help you achieve your long-term financial goals.
The longer you stay invested in your ULIP, the more time you have to enjoy bonuses such as loyalty additions or wealth boosters. Once you invest, you should commit to it for the long-term.
You purchase a ULIP with two goals in mind. Firstly, you'd like to invest your money and grow your wealth. Secondly, you'd like to get life cover to protect the financial interests of your family. But, you can also enjoy certain ULIP tax benefits. As per the Income Tax Act, 1961, the premiums you pay are eligible for ULIP tax exemption up to INR 1,50,000 per year. To enjoy this ULIP tax benefit, you must make sure that your sum assured is at least 10 times the annual premium you pay. If this requirement is not met, the maturity benefit will not be exempt from income tax and your premium tax benefits will be covered at 10% of your total sum assured.
You can keep the following factors in mind to choose the best ULIP plan for your finances.
ULIP investments are structured quite like mutual fund investments. However, in ULIPs, investments from different investors are pooled together before allocating to various funds of the investor’s choice.
As an investor you can either buy units (shares) of a single fund or you can opt to diversify your investment across different ULIP funds. All of these are market-linked and depending upon the market conditions and fund performance, you have the flexibility to adjust your fund preferences for as long as the duration of the investment.
All ULIPs are managed by fund managers, whose job is to ensure the investment remains aligned with the investor's financial goals and objectives.
To start your investment, you decide on a lump sum to commit to the plan. Then once the plan is selected, you can start the premium payment, which could be annual, six-monthly or monthly, depending upon the plan you choose. You can also use a ULIP Calculator to work out your premium.
The premiums you pay are invested in the funds chosen by you after deducting different charges such as allocation, fund management, policy administration, and charges for providing insurance cover. These are deducted by cancelling some units. The per-unit value is calculated by dividing the fund's total value by the total number of units.
ULIP plans are market-linked investment opportunities that anyone above the age of 18 can avail. They are ideal for people expecting decent returns with minimum Life Cover. Here are some investors for whom ULIPs can be a great option:
If you want to maximize your returns from your ULIP investment, here are some of the things that you can do:
The lock-in period of a ULIP, or Unit Linked Insurance Plan, is five years. Policyholders cannot surrender or withdraw their funds during this period without incurring charges. This time frame encourages a long-term investment approach that helps wealth creation and also meets the insurance objectives of a ULIP.
Here's a detailed comparison of Unit Linked Insurance Plans (ULIPs) with other investment options available under Section 80C #. Go through the details for each on lock-in period, tax benefits, underlying assets, taxation, risk, and charges for an in-depth comparison and informed decision-making:
Investment Option |
Lock-in Period |
Tax Benefits |
Underlying Assets |
Taxation |
Risk |
Charges |
ULIPs |
5 years |
Premium and maturity benefit exempt under 80C, 10(10D) |
Equity, Debt, Hybrid funds |
Maturity proceeds tax-free. Returns from equity funds may attract capital gains tax. |
Market-linked risk, varying based on fund allocation |
Premium allocation, fund management, policy administration, mortality charges, switching/surrender charges |
Equity-Linked Saving Schemes (ELSS) |
3 years |
Premium exempt under 80C |
Primarily Equities |
Gains above 1 lakh in a year are taxable as LTCG at 10%. Capital gains tax on redemption |
Less risky than ULIPs but risk is market-linked |
Fund management charges (expense ratio of 1.05 to 2.25), exit load (if applicable) |
Public Provident Fund (PPF) |
15 years |
EEE (Exempt-Exempt-Exempt) |
Government Securities |
Interest and maturity proceeds tax-free |
Risk-free, backed by the government |
One-time account opening charge and none other |
You can opt for any of the following types of funds while investing in a ULIP.
The following charges are deducted from your policy towards the cost of benefits and administration services provided by HDFC Standard Life Insurance -
In conclusion, Unit Linked Insurance Policies are versatile financial instrument because it seamlessly integrates insurance and investment components. With the dual nature of ULIPs, policyholders can benefit from protection and wealth creation under a single plan. ULIPS have features like market-linked returns, flexibility in fund selection, transparency, and a specified lock-in period that aid holistic financial planning.
However, to get maximum returns on your investment, it is important to track your plans regularly and assess them to ensure they align with your financial goals and risk tolerance. With ULIPs, you get a dynamic and personalised solution for investors who want a balanced strategy supporting long-term economic growth as well as life cover.
Unit Linked Insurance Plans (ULIPs) are a category of goal-based financial solutions that offer dual benefits of protection and Investment. Your Unit linked Insurance Plan is linked to the capital market and offers you flexibility to invest your units in equity or debt funds depending upon your risk appetite. ULIPs are typically bought for long term capital gains and offer a protection cover too.
ULIPs can be considered suitable investments for those seeking insurance coverage and market-linked returns. With ULIPs, you get flexibility, choice of funds, and wealth creation. However, the suitability of this investment instrument depends upon your financial goals and risk tolerance.
It's always a good time to invest in ULIPs. Ideally, the earlier you start, the better it is for you. This is because you will have more time to grow your money and reach your financial goals. You can also pick the funds you'd like to invest in based on your age, risk appetite and how much you'd like to earn in returns.
ULIP maturity proceeds are exempt from tax under Section 10(10D) of the Income Tax Act, 1961. This makes ULIPs tax-efficient investments.
You can follow a few simple steps to maximise your returns. The steps include:
When you opt to purchase a ULIP, you have the opportunity to invest in various fund options based on your risk appetite and financial goals. The fund value is essentially the total monetary worth of all the fund units that you own at any given point. For example, you may hold 10,000 units. Each unit is valued at INR 20. This means your fund value is 10,000 x 20 = INR 2,00,000.
The whole premium you pay does not go towards the purchase of units. These are purchased only after deducting different charges such as allocation, fund management, policy administration, and charges for providing insurance cover. The remaining amount is used to buy units.
NAV, or Net Asset Value, is the value of each unit in a ULIP fund. NAV reflects the fund's market value. It helps track the performance of the ULIP's underlying investments.
The minimum lock-in period for a ULIP is typically five years. Policyholders cannot surrender or withdraw their funds during this period without incurring charges. This duration encourages a long-term investment horizon.
Unit linked insurance plans give you an opportunity to earn market-linked returns as part of the premiums are invested in market linked funds which invest in different market instruments including debt instruments and equity in varying proportions.
Unit linked insurance plans offer the twin benefits of life insurance and savings at market-linked returns. Thus, you have the opportunity to invest your money to earn higher returns, while taking care of your protection needs. Investing in unit linked Insurance plans helps to inculcate a regular habit of saving and investing, which is important for building wealth over the long term.
HDFC Life offers different ULIP's (Unit Linked Insurance Plans) which are just right for you and can help you meet your specific financial objectives.
ULIPs offer a unique combination of insurance and investment. They also lend flexibility in fund choices. In addition, there is potential for market-linked returns and tax advantage. All these features make ULIPs highly rewarding as compared to other investments.
Having known the various advantages that ULIP offers, it is advisable to choose the right plan depending on your age group and the corresponding goals at various life stages.
Unit Linked Insurance Plans offer you a wide range of flexible options such as
We help you to choose best insurance plan based on your needs
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Reviewed by Life Insurance Experts
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.
#The above tax benefits are 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. 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.
18. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.
~ This is the return of the benchmark index fund and not indicative of HDFC Life Top 500 Momentum 50 fund performance (SFIN - ULIF07616/10/24Top500MoFd101). Source: https://www.nseindia.com/
ARN - MC/02/24/9483