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What Is the Potential for ULIP Growth?

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Potential for ULIP Growth
August 02, 2023

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

Unit-Linked Insurance Plans (ULIPs) are unique financial tools that allow individuals to invest for the future while enjoying life insurance coverage in the present. These insurance-cum-investment plans have become popular across India since they allow investors to diversify their portfolios and plan for long-term financial goals. Let's better understand the potential for growth in ULIPs and the factors that contribute to it.

Benefit from the Power of Compounding

ULIPs have the potential for growth through the power of compounding. The returns you earn on your investment get reinvested to generate further returns in compounding. ULIPs invest in equity, debt or a combination of both, and the returns get compounded over the long term. The compounding effect is more significant in the long run, making ULIPs an ideal investment option for those who can stay invested for an extended period.

Switch Flexibly Between Asset Classes

ULIPs allow investors to switch funds between asset classes and take advantage of market movements. Investors can choose asset allocation based on their risk appetite and investment goals. You can modify the asset allocation based on market conditions or changing personal circumstances, making it a flexible investment option.

Protection for Life

ULIPs offer insurance coverage, making it an attractive investment option for those seeking to secure their future. ULIPs provide a life cover, offering financial protection to the investor's family in case of an unfortunate event.

Tax Exemptions

ULIPs offer tax exemption benefits, making it a popular investment option. The premiums paid towards ULIPs are tax-deductible under Section 80C# of the Income Tax Act.

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.

Factors Contributing to ULIP Growth Potential

Several factors contribute to the ULIP growth potential. These include:

Market Conditions

ULIPs invest in equity, debt or a combination of both, and the returns generated depend on market conditions. The performance of the stock market or the debt market will impact the returns.

Investment Horizon

ULIPs are long-term investment options, and the returns generated are more significant in the long term. Staying invested for an extended period will help the investor benefit from the power of compounding.

Asset Allocation

The asset allocation the investor selects will determine the returns generated on the ULIP investment. Investors can choose between equity and debt funds or a balanced fund based on their risk appetite and investment goals.

Premiums Paid

The premiums paid towards ULIPs will determine the amount of insurance coverage and the returns generated on the investment. Investors should select a premium amount based on their ability to pay and financial goals.

Charges

ULIPs come with various charges like premium allocation, policy administration, fund management, and mortality charges. The charges deducted from the investment will impact the returns generated. The investor should compare the fees of different ULIP plans before choosing one.

Investment Discipline

Investment discipline is essential to achieve long-term financial goals. ULIPs come with a lock-in period of five years, which ensures that policyholders continue their investment for a specified period. The lock-in ensures the policyholder stays invested and focuses on achieving their financial goals.

ULIPs have been gaining popularity recently due to their potential for growth, flexibility, and tax benefits. They offer insurance and investment, making them an ideal option for individuals who want to fulfil long-term financial goals securely. ULIPs also provide a switching option between different asset classes, which helps diversify the portfolio and maximise returns based on market changes. You must choose a ULIP plan that aligns with your financial goals and risk appetite. It is also crucial to read the policy document carefully and understand the charges associated with the plan before investing.

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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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Author Profile Written By:
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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