What is ULIP Plan?
A unit linked insurance plan is a product where insurance and investment benefits are integrated into one. These are offered by insurance companies and it was first launched by the Unit Trust of India (UTI) and these are mainly available in India.
How does the ULIP Plan work?
ULIP plan is a combination of insurance and investment. When you pay a premium, one part of it is used by the insurance company to provide you insurance coverage and the rest are used to invest in debt and equity securities.
How is ULIP, similar to a mutual fund?
Like a mutual fund, premiums are deposited together to invest in proportion and you can personalize your investment on the basis of your investment needs and get the benefit of the risk. Your ULIP will keep a fixed number of funds, which holds the NAV (Net Asset Value) declared on a daily basis. The value of each unit of a fund calculates by dividing the total value of the fund’s investment by the total number of total units. The rate of return is determined by NAV.
How is ULIP different from a mutual fund?
ULIP has a minimum lock-in period of 5 years. It also includes insurance coverage. With the equity mutual fund scheme, if you are not satisfied with your performance then you have the freedom to sell it. The decision to withdraw your ULIP becomes difficult when you lose your insurance coverage.
How is insurance policy similar to ULIPs?
In this, you will receive a coverage like life insurance policy or Term Insurance plan. You have to pay a premium to the insurance company. The premiums are different depending on the plan you take. One-time lump sum (single premium) can be invested initially or you can opt for periodic payments with annual, semi-annual or monthly premiums.
Benefits of ULIP Market-Linked
Since ULIPs are invested in funds, market-linked instruments, so if the market is in your favor then you get an opportunity to get extraordinary returns.
- Life insurance
Its insurance policy also provides life cover coverage, with many features.
- Long-Term Savings
ULIPs are usually extended for a period of 5 years or more. Just like an insurance plan, long-term commitment is required to pay the premium, for which the policy will be well paid when mature.
ULIP gives you the option to switch between different investments plans, according to your needs or flexibility. According to your needs, in addition to the option to switch between different investments plans, you can partially withdraw your investment (subject to fee). You can also create a single premium edition to increase your investment. Single Premium means a lump sum payment. Premium Plans you can pay a lump sum amount in the form of a premium alone or you can opt for periodic payments based on your plan for a fixed period of years.
Profit from ULIP is tax-free under Section 80C and 10D.
- Tax benefits
On the death of the policyholder, ULIP will return to the maturity of the policy or partial withdrawal on the policyholder’s will.
- Death Benefit
The return on the death of the policyholder will be completely tax-free.
The gain received on maturity is tax-free under 10D.
- Partial Withdrawal
If the return is not greater than 20% of the fund value of the policy and the lock-in period is created after the expiry, then it is tax-free.
You can claim the tax rebate on premium paid on ULIP, which have been invested in equity, debt or money market instruments under Section 80C. The limit of Section 80C for the present and the coming year is 1.5 lakhs.
- Premium Extra
In the later stages, additional premiums offered in the scheme are tax-exempt under section 80C and 10D, if it is not more than 10% of the sum insured.
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