Investment Plans

Benefits of Unit-linked Insurance Plans

Benefits of Unit-linked Insurance Plans

Last Updated : March 8, 2022, 6:22 p.m.

If you’re looking for a product that can secure your family and at the same time provide a wide range of investment options, consider buying Unit-linked Insurance Plans (ULIPs). This is a life cum investment plan for those who want to earn and secure their family financially against misfortunes. What makes it different from the other insurance? It is different because here you can invest a part of your premium amount in making money by putting them in the equity or debt fund of your choice. While the other part of the premium will be ensuring your family’s financial well-being in case of your death. Let’s check the benefits of Unit-linked Insurance Plans in detail.

List of Benefits Under Unit-linked Insurance Plans

When you get a ULIP, the insurer will provide you with the following benefits –

Financial Protection for Family

In case of your death, the company will be liable to pay the death benefit to the nominee. This will be at least 105% of the total paid premiums including top-up if any. How do the family members get the ULIP money? For this, your nominee needs to submit a duly filled claim form to the insurance company along with the proof of death such as a death certificate stating the cause of death.

Wide Range of Investment Options

You’ll get up to six or seven fund options from your insurer wherein you can invest your money as per your risk tolerance. If you have experience in investment, invest money in an equity-oriented fund wherein your money will be used to purchase shares of the top-performing companies. You could even invest in debt funds that put your money in relatively safer instruments. Whereas a hybrid fund comes with a mixture of debt and equity investments. So, the premium will go to both these instruments based on the proportion as mentioned in your scheme. This way, the risk will be balanced out. In a debt-oriented fund, your money will be invested in government securities, bonds, etc. Why? Because they’re at the least risk whenever there is a change in the market.
So, do check the fund options while choosing Unit-linked Insurance Plans. Consider the insurer who provides a wide range of funds at least six or seven. After that, check the fund performance and select suitable options as per your goal.

Additional Fund Units

In case you stay invested under Unit-linked Insurance Plans for a longer term, the company will invest additional units to your respective funds known as loyalty addition. This benefit is available to the insured from the fifth or sixth policy year onwards. So, this way, your investments will be taken care of by the company.

Partial Withdrawal Facility

If you need lump sum money during the policy term, you can withdraw money from your funds. But you’re allowed to do so after the expiry of a five year lock-in period that starts from the date of policy inception. This way, you can meet your financial needs without surrendering the whole policy. Your ULIP benefits will stay intact when you apply for a partial withdrawal.

Premium Redirection

This feature of Unit-linked Insurance Plan is applicable only if you have chosen a fixed portfolio strategy and your money is not in the Discontinuance Policy Fund. In a Fixed Portfolio Strategy, you need to specify the funds and the proportion in which your premiums will get invested in the same. At the time of payment of the premium, the split may be changed without any charge. This will not count as a switch of funds. This benefit does not apply to the Single Pay option.

Switch Option

You can switch your investment from one fund to the other if your fund isn’t performing well as per your expectations. For this, you need to send a request to the insurer and if the same gets approved, you need to pay a fee for it, but some insurers may offer you this service for free.

Free Look Period

You get fifteen days from the date of policy inception to cancel the policy and receive a refund of the paid premium if you don’t agree with the terms and conditions. During this free look period, you’ll get the life cover and your money will go into your chosen funds. On cancellation of the Unit-linked Insurance Plan during the free look period, you will get an amount equaling unallocated premium plus charges levied by the cancellation of units and fund value as on the date of cancellation less stamp duty charges and medical expenses borne by the company (if any). In case you have purchased the ULIP from distance marketing modes such as SMS, telephone calls, internet, TV advertisements, the free look period will be 30 days.

Tax Benefits

You can avail of tax benefits under the ULIP policy as per Section 10 (10D) and 80C of the Income Tax Act, 1961.

How is the Unit Value Calculated in ULIPs?

The net asset value (NAV) of your different funds is declared daily, except the days on which the banks or exchanges are closed. The NAV of each segregated fund is computed as shown below –

[Market Value of Investment + Value of Current Assets – Value of Current Liabilities and provisions] Divided by the Number of units existing under the Fund as on the valuation date, before any new units are created or redeemed by the insured.

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