Here are seven of the many benefits of purchasing ULIPs:
1. Dual I-I benefit
ULIPs offer life insurance that benefits the insured’s family during the policy term. It also provides rewards on investment when the insurance reaches maturity. This is a dual (I-I) benefit of investment and insurance.
The policyholder allows a predetermined portion of the entire premium for investment in the chosen instrument (debt and equity).
2. Triple E-E-E benefit
The triple EEE (Exempt-Exempt-Exempt) benefit is available to ULIP policyholders. This shows a policyholder’s eligibility to claim a tax rebate for each stage—investment, returns, and withdrawal.
The premium they paid is deductible from their yearly taxable income. The best feature of ULIPs is that they are tax-free, unlike mutual funds. The policyholder may withdraw their fund and accrued returns after the lock-in term has ended. Hence, the maturity amount or sum promised is free of all taxes.
In addition, maturity proceeds are tax-free, offering you ULIP tax benefits.
3. Top-up Advantage
The Top-Up Advantage lets policyholders enhance their investments through ULIPs. They can add more funds to their current coverage with the aid of the top-up facility. If their current fund has been performing well, customers can easily add extra funds to the current premium amount to participate in its expansion. The estimated value of your ULIP investment can be calculated using a ULIP calculator based on the premiums, tenures, and other information you enter.
4. Option to switch:
The ability to change allows policyholders to alter their exposure to equity, hybrid, or debt funds according to their risk tolerance and the performance of various funds. Also, the quantity invested in debt and equity instruments changes according to the investor’s level of risk tolerance. Perhaps the only financial tool that gives policyholders flexibility is ULIPs. With this “switching” option, policyholders can transfer all or part of their investment from one fund to another without incurring fees.
PFew free switches are offered by the majority of ULIP policy each year. Policyholders who follow capital market developments closely can use this special feature from the comfort of their homes. In addition, they can go to the ULIP provider’s nearest branch.
5. Costs structure
ULIPs typically have five different charges: a policy administration fee, premium allocation fees, a fund management fee, a surrender fee, and a mortality fee:
- The administration fee is assessed for ULIP upkeep.
- Due to the underwriting cost fund management, the policyholder would incur higher premium allocation charges during the initial period.
- Charges for fund administration typically vary from 0.5% to 2%.
- A resignation fee is due when the policyholder surrenders the policy before maturity.
- A variable fee known as the mortality charge covers the expense of providing life insurance to the insured.
The IRDAI regulations limit the ULIP policy costs to 3%. As a result, the policyholder will pay less and be able to earn better returns. Visit the official website of IRDAI for further details.
6. Lock-in Period
ULIPs typically have a lock-in period of three to five years or longer. After the lock-in period is up, the policyholder can terminate the coverage. The accrued corpus is transferred to a discontinuation fund in this situation. All insurance companies are required to give the insured a refund. The primary goal of the discontinuance fund is to distribute funds from the abandoned scheme. The policyholder isn’t given liquidity throughout the lock-in term. The insured may withdraw money as needed after the lock-in period has ended. After deducting any applicable discontinuance or surrender fees associated with the relevant policy, the funds will be given.
7. Potentially better than others
ULIPs provide much higher returns than other insurance products and offer ULIP tax benefits. ULIPs place the funds in a variety of asset classes. Although tax-saving funds have far larger returns, policyholders can choose a different fund each year based on its performance. The amount due at maturity is determined by the success of the equities market over the fund’s lifetime. On the other hand, endowment plans make a fixed payment following a predetermined period. A five-year lock-in period is included with tax-saving FDs (fixed deposits). The investor’s income is then increased by returns, which are taxed according to the investor’s income tax bracket. You can use a ULIP Calculator to estimate future returns and the value of a ULIP investment.
* There are two tax regimes in India – new and old. Choose the correct one after consulting an expert to get the desired tax benefit. You can opt for a regime change during the next financial year
Many people are selecting ULIPs due to changes in investment patterns and the availability of tools linked to the market, such ULIPs.
