Unit Linked Insurance Plans (ULIP) are a life insurance product in simple terms. However, this insurance product offers the investors an option to invest in equity or debt, according to their preferences. Their premiums work like those of mutual funds.
From then to now
Earlier ULIPs faced a bad reputation due to the high commission paid to the distributors. Therefore, sellers pushed the products to such policy-holders who either could not handle the market risks or could not invest in long-term policies. The future of ULIPs took a positive turn with the market crisis of 2008-2009 and the Insurance Regulatory Authority of India (IRDAI) regulations of 2010. However, the share of ULIPs in new businesses witnessed a decline from the year 2010 to 2017.
With many ups and downs in the regulations, the ULIPs seen today are fourth generation ULIPs. The second generation ULIPs were the ones that followed capping charges in 2010. The third generation ULIPs were introduced in 2015, equipped with online-only model and zero premium allocation charges. Today, the overall charges of products are much lower.
Benefits of ULIPs
Savings on mandatory costs: Today the policy holders save on various fronts like premium allocation charges and primarily, the commission paid to the distributors. The reformed ULIPs are presented as products that aid a policy holder to achieve their financial goals through disciplined investing, market linked returns and lower charges. These reforms have given a new life to this segment of investments.
LTCG exemption: After being exempted from Long Time Capital Gains Tax (LTCG Tax), ULIPs have increasingly gained popularity. They are being recognised as the best investment options of recent times. Investors have come to trust ULIPs, after being offered a perfect combination of equity and debt investments, along with reasonable rates. ULIPs have numerous advantages apart from low tax rates and the choice to invest in different funds.
Mortality rates: Recently some ULIPs have been able to offer back mortality rates on maturity with plans. Being an insurance policy with a premium, this feature simply makes them a policy with a free life insurance cover.
Easy switching between funds: ULIPs offer the investors freedom of choice. From a bucket of 4 to 8+ funds, an investor can switch between funds to get the best returns on their investment. This enables an investor to move-out of loss-making funds when needed.
Tax savings: One of the most important features of ULIPs is their exemption from tax, both at the time of investment and at the time of maturity. The investments are deductible from the taxable income under section 80 C (up to Rs. 1.5 lakhs) and the money earned is exempted as per section-10(10D).
There are many reasons that make ULIPs the best investment option in the current market condition. With all the positive qualities mentioned in the article, ULIPs are the solution to the problem of a volatile market for any investor. ULIPs are the stress-buster for investors who are looking to invest in the world of equity to meet their long-term objectives.
In the Unit linked life insurance product, the Investment Risk in investment portfolio is borne by the Policyholder.
The aforesaid article presents the view or an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ before making any decision.
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