India has nearly 1.3 billion people. Out of these 1.3 billion, only 10% people are insured. Moreover, Insurance is penetrated in the rural market slowly. Even if there are approx. fifty companies are present in this space, the insured population is not growing satisfactorily. Recently, Government of India has also introduced several insurance policies for the poor. There are different types of Life insurances available in the financial market e.g. Conventional or Endowment Insurance, Term Insurance, Unit Linked Insurance Policy (ULIP).
Presently conventional insurance is losing its shine with the advent of Term Insurance and ULIP. Generally, a person should have life insurance coverage of 10 times the yearly income he has. As the income grows, insurance needs also to be taken care. The above condition can be easily achieved by term insurance. If you are confused between endowment and term insurance and in a dilemma what to take, read other article Which Life Insurance Policy to buy. Now, this article will help you to answer your question why should you in invest in ULIP now.
Unit Linked Insurance Policy (ULIP) is an excellent financial product which can be used for insurance as well as investment. Some part of your premium towards ULIP goes for insurance and some part goes to funds which act as the investment. This fund can be equity, debt or combination of both. The fund can be a mix of different funds also.
The typical insurance coverage of ULIPs is ten times the annual premium. Suppose, your annual premium is Rs 10,000, your life insurance coverage will be Rs 1 Lakh.
The endowment or conventional type Life insurance also facilitates the same advantage of insurance and investment to policyholders. But in the case of ULIP, the returns are more than the conventional life insurance as it is exposed to equity and lower fund maintenance charges. Where endowment insurance cannot give you 7-8% annualized return the average performed ULIP can give you as much as 11-12% annualized return.
Benefits of ULIP:
Insurance and investment
You can have the advantage of wealth creation at the cost of insurance. Those who are not happy with only insurance coverage by term insurance and want returns also ULIP is best fitted with them. The returns of ULIPs are comparable with ELSS funds but remember in case of ELSS, you cannot get the benefit of insurance coverage.
You can choose the investment option such as equity or debt where you want to invest. Even you can select the combination of equity and debt according to your risk taking capability. Some ULIPs are giving the chance of changing the life cover. Life cover changes as you grow old according to your income and liabilities in personal life.
You can choose the option of depositing yearly or monthly premium according to your choice.
The facility of top up the policy and invest more to have more return on investment is available.
You can opt for riders like disability cover, Accident cover, critical illness etc with these Unit Linked policies.
ULIPs are also giving tax benefit under section 80C of income tax. You can have the benefits of up to Rs 1.5 lakh. The lock-in period for the policy is five years. This comes under the exempt-exempt-exempt (EEE) category for the income tax. You can get the tax benefit while investing, the earnings from the fund are not taxable and the maturity is also not taxable under section 10D of income tax.
All the charges are clearly written on the policy brochure which appraises ULIPs as one of the most transparent product. The fund name is written through which the policy invests. You can track the individual fund performance on the insurance company website and track regularly.
Switching of funds
ULIPs are such designed that you can switch the funds within the policy period. Most of the insurance companies allow free switching of funds two times in a year. If you want to switch more than the specified time, you will be charged extra. The charges may be varied between very nominal charges of Rs 50 to Rs 500 per switching.
- Low charges
There are four types of charges which are charged by the insurance company for ULIP policies. These are:
a. Premium Allocation charge
b. Policy Administration charge
c. Mortality charges
d. Fund Management charges
These charges are continuously decreasing over time. So it is always advisable to invest in the ULIP for a longer term to have a better return on Investment (ROI). Moreover, if you stay invested for a long term, you may receive loyalty bonus from the insurance company which will increase your return. Some of the insurance companies such as Canara HSBC OBC Life Insurance is giving Wealth booster in addition to Loyalty bonus. The wealth booster is 2.9% extra units in the 10th year of the policy period and 1.5% extra unit in every fifth year starting from 15th year of the policy is added to the accumulated units.
How you choose ULIP?
ULIPs are designed to meet the financial goals like child’s education, marriage or may be your retirement. Based on the above goal and according to your risk taking capability choose the fund and maturity amount. At the same time, you will have life cover based on your premium. Normally, the life cover is 10 times of the annual premium.
But remember don’t set the life cover first to choose the policy. After selection of ULIP if you want more life cover, go for term insurance.
Why should you invest in ULIP now?
From the above benefits, you can easily understand how ULIPs can help you to achieve your financial goal with life cover. The life cover portion ensures that your family will also get the benefit in line with your thinking even if you not there to take care of them.
Moreover, the equity exposure with switching facilities proves it as one of the most flexible and transparent insurance product. Even you can have the benefit of lower policy administration charges with various innovative online ULIPs. You neither have to contact any agent nor to go to insurance office for opening the policy. You can buy a ULIP through a website from the comfort of your home and the process is very easy.
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