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Introduction
ULIP the term which was in news recently stands for Unit-linked insurance plan which is a kind of insurance plan where the premium payments are invested directly in equity shares, debt/ money market/ other instruments. The main reason for the popularity of ULIP is that these plans also offer tax saving benefits along with life insurance cover. ULIPs have been brought by many insurance companies in India which enables the investors to buy and sell units linked to stocks, bonds and mutual funds.
Definition
Unit-linked insurance plan is a type of insurance plan in which the premium is invested directly in equities, debt or money market instruments (e.g. debt funds). In simple words, the unit-linked insurance plan means a life insurance policy linked with direct investor’s investment and accrued value of that investment instead of low risk term insurance plans.
Importance of Unit-linked insurance plan
ULIPs are very popular because of their tax saving benefits and also because it provides an opportunity to gain high returns on investments. If a person has a good understanding of equity markets, he can make some profit from this scheme. Since there are many different players in the market, it is advisable to go through the insurance company’s maturity value and also look for unit-linked insurance plans that have better risk-adjusted returns.
Why ULIPs are needed?
ULIPs can be used by people who are looking for long term wealth creation, tax saving investments and also by those who want to protect their family in case of any eventualities. As ULIPs combine all these three things – life insurance, investment and tax benefits and hence makes them a very good investment option for people.
ULIPs are meant for people who have already made a significant amount of wealth, so that they can use this as a safety net. Firms like Reliance Capital, HDFC Life and ICICI Prudential Life Insurance are some of the best players in the industry providing these plans to investors.
What is the difference between ULIP and other insurance plans?
ULIPs are different from traditional fixed term life insurance plans because they have an investment component and also offer tax benefits to the policy holders. ULIPs provide fixed returns in equity markets along with a decent death benefit (usually equal to 25% of the sum assured) to policy holders whereas other insurance companies allow only a small sum assured along with lower investment returns. Also, ULIP holders get to enjoy tax benefits on their premiums. It is advisable to go through the investment option offered by the insurance company and understand if this fits into the person’s risk profile.
Advantages of Unit-linked insurance plan
Unit-linked Insurance plans are beneficial in providing life insurance cover along with tax benefits in equity markets, debt or money market products. Also because of its easy exit option, it provides an opportunity for investors to make good returns on their investment. These plans also help investors to get rid of market risks and increase their net worth as well as savings over a period of time.
Disadvantages of Unit-linked insurance plan
There is always something which companies don’t like and that is the growth of unit-linked insurance plans in particular. Also because of the high risk involved in this plan, some people may find it difficult to get a policy as well. Lastly it takes some time before you will start receiving adequate returns on this investment plan. As saw earlier, if you are looking for a long term investment solution with better returns on your investments, ULIPs can be a good option for you.
Conclusion
ULIPs as an investment option cannot be ignored and are meant for those who are looking for long term wealth creation, tax saving investments and also by those who want to protect their family in case of any eventualities. ULIPs have gained popularity because of its tax benefits, higher returns on investments, easy exit option and the possibility of reducing market risks.
Unit-linked insurance plan is a type of insurance plan in which the premium is invested directly in equity markets, debt or money market instruments (e.g., debt funds). They provide a good combination of insurance protection & wealth creation, which together make them a very good investment option for people. Unit-linked insurance plans combine the best of all worlds – tax saving benefits, capital growth and a decent death benefit. Also because of its easy exit option, it provides an opportunity for investors to make good returns on their investment. These plans also help investors to get rid of market risks and increase their net worth as well as savings over a period of time.
