Is ULIP The Right Plan For You?

Whether you are a young professional starting their financial planning journey or someone who has years of experience managing their wealth, knowing about the insurance and wealth creation plans available to you can be helpful. Among the many plans available today, ULIPs remain a popular one. These are plans that offer wealth creation alongside life insurance and can be considered by someone who is looking for both these benefits in a single plan.

What are ULIPs and who are they suitable for? Let’s find out.

What is ULIP?

Let’s first understand what ULIP means. ULIP is an acronym that stands for ‘Unit-linked Insurance Policy’. As the phrase ‘unit-linked’ suggests, the policy is a life insurance plan that offers the benefits of wealth creation as well.

How do ULIPs work? Suppose you buy a ULIP policy suitable for you. Once you do so, you start paying premiums to maintain the policy, unless it is a single-premium policy. The policy offers you a life cover for a certain number of years. If the person insured were to pass away during this term, their nominee can make a death claim and get a death benefit.

On the other hand, if the person insured survives the term, the policy will then pay survival benefits. These are earnings from the wealth creation side of the plan. You can use a ULIP calculator to get a better idea of how much you may expect to earn from the plan.

The premium one pays towards the policy is divided to fulfil both these goals separately. Thus, the policyholder does not have to worry about their life cover being vulnerable to market fluctuations.

Features and Benefits

The details of ULIPs, such as their features and benefits, may differ across plans and insurance providers. However, there are some common features and benefits that consumers should be aware of.

  • Death Benefit

As with all life insurance plans, ULIPs also offer a death benefit. This allows you to keep your family secure and prepare them to face the unexpected.

  • Maturity Benefit

When the policy matures, the insurer will pay a maturity benefit to the policyholder. This feature makes the policy an apt choice for anyone who wants to pursue their dreams, but also support their loved ones.

  • Lock-in period

One of the most significant features of ULIPs is the lock-in period. Most ULIPs come with a lock-in period of five years. Owing to this condition, you may not be able to access the funds for at least five years from the purchase. Also, you may not be able to surrender your policy during this period. Even if you do, the dues will be paid to you only after the lock-in period ends, and after due deductions.

  • Liquidity

After the lock-in period, some ULIP policies may offer you the option of partial withdrawals. This means that you may be able to take some money from the plan to fulfil any urgent or unexpected requirements.

  • Tax Benefits

ULIP premiums as well as the benefits received may be eligible for tax exemptions. Consult your tax advisor to know how you may benefit from this.

Should You Get A ULIP?

There are a number of wealth building, life insurance, as well as combination policies available today. It is easy for consumers to be spoilt for choice. When deciding whether a policy is right for you or not, it is important to keep your goals in mind and decide accordingly.

The dual benefits of ULIPs are what these plans are most known for. If your goals align with these offerings, you may choose a suitable ULIP policy for yourself.

Before you do so, know that these plans tend to be a bit more expensive than regular life insurance plans, such as term life insurance. There are two aspects of the plan that may help you make sense of the higher premiums.

Firstly, the plan offers a wealth creation opportunity. Since a part of your premium is redirected towards this aspect, it adds to the plan cost. Secondly, there are several charges associated with the plan, such as premium allocation charge, fund switching charge, fund management charge, policy administration charge, mortality charge, partial withdrawal charge, and more.

Given this higher cost, the plan may not be suitable for people who are not comfortable with paying more for life insurance. For someone who has savings set aside, ULIPs may be the next step in their financial portfolio. You may consult your financial advisor for details.

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