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Build Wealth in 2021 with ULIPs

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August 03, 2021

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Right from the time we’re young, we’re told to save money for a rainy day. While it’s true that savings are important, we often forget to teach children to grow their money. By making prudent investments, individuals can make their money work for them and secure their financial futures. There are multiple investment options available in the market today. If you’re looking to build your wealth in 2021, you can opt for a Unit-Linked Insurance Plan or ULIP.

What Is a ULIP Policy?

There are multiple life insurance and investment plans available in the market. So, why should you choose a ULIP policy? The answer is simple. A ULIP policy is the only financial instrument available that offers both life cover and investment opportunities. The money you put into your ULIP at regular intervals is divided into two parts. The first is a small amount that serves as your ULIP insurance premium. The rest of the money is invested in market instruments. You can choose the funds where you would like to invest your money.

Why Should I Opt for a ULIP Policy?

When you purchase a ULIP insurance plan, you can protect your family’s financial future while building wealth for your long-term goals. Let’s take a look at the benefits of purchasing a ULIP policy:

1. Flexible Investments

You have complete control over your ULIP investment. Depending on your financial goals and risk appetite, you can opt to invest in debt or equity funds. You can also choose to invest in a mix of both, creating a balanced investment portfolio. Additionally, you can opt to switch your investment between funds depending on the market ups and downs. By doing this, you can maximise your investment returns.

2. Protection for Your Family

Whenever we consider growing our wealth, it’s for the wellbeing of our loved ones. If you’d like to take care of your elderly parents, spouse or children, a ULIP insurance plan will have your back. Apart from helping you grow your wealth for the future, the life cover component ensures your loved ones are looked after in every eventuality.

3. Partial Withdrawals

Your ULIP policy doesn’t only come in handy in the future. Under certain conditions, you can make partial withdrawals against the accumulated investment funds. With this benefit, you can enjoy quick and easy fund liquidation in an emergency.

4. Tax Benefits

As with all life insurance products, your ULIP policy allows you to make tax-free investments. Interestingly, the returns from your ULIP investment do not attract any taxes, neither does the death benefit payout that your beneficiary receives.

Understanding ULIP Charges

To provide you with the required life cover and investment services, your insurance provider will levy charges on your ULIP policy. It’s a good idea to acquaint yourself with these charges before purchasing a ULIP plan.

1. Fund Management Fee

Your insurance provider cannot charge you a fund management fee that amounts to more than 1.35% of your total investment value. This fee enables your ULIP provider to look after your money. While some policies have a management fee based on your investment, the best ULIP plans offer a flat rate.

2. Premium Allocation Charges

This one-time charge allows your insurance company to cover the initial costs associated with issuing a plan. The amount gets deducted from your investment.

3. Administration Charges

Managing your funds costs your insurance provider time and money. They make up for this by levying administration charges on your ULIP policy. The amount gets debited directly from your investment. Today, the best ULIP funds come with zero administration costs.

4. Mortality Charges

Essentially, this is another name for your life insurance premium. The actual amount depends on your medical history, health risk and age.

5. Switching Charges

Most ULIP policies allow you to switch your funds from one type of investment to another. Sadly, many insurance providers put a cap on the maximum number of switches permitted in a year. If you cross the limit, your insurance provider will levy switching charges on your fund changes.

6. Partial Withdrawal and Surrender Charges

A ULIP is a long-term investment. It works best when you stay invested for the entire term. So, if you make a premature withdrawal or surrender your policy in advance, you may have to pay a small fee.

Frequently Asked Questions About ULIPs

Q: How much will I receive at maturity?

A: When your ULIP reaches maturity, you will receive the fund value as the maturity benefit. Your fund value depends on the investments you have made over the years.

Q: Is there a lock-in period?

A: Yes. Since ULIPs work as long-term investment avenues, every policy has a minimum lock-in period of five years. You can choose to surrender the policy after five years, but it may attract certain charges.

Q: Will I receive any payout if I surrender my policy in advance?

A: After the lock-in period, you can surrender your policy at any time. Should you choose to do this, you will receive your investment value as a payout. Ideally, you must stay invested in your ULIP policy for at least ten years to grow your wealth and achieve your financial goals.

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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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