Summary
A ULIP is an insurance policy where the insured’s money is invested in one or more funds of the insurer as per his/her choice and risk appetite. ULIPs are regulated by the Insurance regulatory and development authority of India (IRDAI). The ULIPs stand apart from the other retirement planning instruments over the following points
1. The Double Benefit of Investment and Insurance
They bring you the benefits of a mutual fund and a traditional insurance policy in a single plan.
- One portion of the premium amount paid by the insured person goes to the investment, and the other portion goes to the insurance corpus. Thus, the portfolio of the insured person has exposure to both profiles.
- The policyholder has the choice to decide the percentage of allocation of funds. For example, based on your risk appetite, you can choose to allocate 70% of the fund to equities, 20% to money market instruments and 10% to debt instruments or vice-versa.
2. Greater Flexibility
They offer a great deal of flexibility when it comes to
- Investment amount: The insured person can increase or decrease the investment amount according to his/her prevailing financial conditions. This can be done by increasing or reducing the SIP (Systematic investment plan) amount. For example,you can start with an initial monthly premium of Rs 5000. On getting a raise in your salary, you may consider increasing your monthly premium to Rs 7000 without any hassle.
- Changing Funds: With ULIPs, you can change the fund as per your age and risk-taking ability. For example, if you are below the age of 40, you can choose to put your money in high-volatile funds, and with growing age, you may want to shift to a lower volatile fund. You can also opt for automatic switching of funds where the funds can be switched on your behalf based on your selected preferences when buying the policy. Kotak Ace Investment plan allows the policyholders to choose from seven different funds based upon their risk-return profile.
- Death Benefits and Additional Riders: They can provide death benefits to the nominee in case of the untimely demise of the policyholder. They can also provide additional riders like accidental death and permanent disability cover.
3. Transparency in Information
ULIPs are very transparent and easy to understand for investors. The charges and benefits are well illustrated in the information brochure. Furthermore, anyone can track the NAV (Net Access Value) of the plan to analyse its performance. NAV is updated daily.
4. Tax Benefits
A ULIP pension plan offer tax relief not only on the premium paid but also on the return on maturity. The premium paid is eligible for deduction under section 80C, and the return on maturity is eligible for deduction under section 10(10D) of the Income-tax Act.
5. Potential to Earn a Higher Rate of Return
The interest rate on bank fixed deposits and traditional non-participating pension plans has reduced in the last two decades. On the contrary, a ULIP retirement plan has the potential to deliver a higher rate of interest when invested for a long duration. It can be a great way of compounding your wealth.
With the Indian economy booming, the equity market here is promising. Despite the ongoing pandemic and economic challenges, the Indian equity market is still thriving and looks promising. Thus, it can be a wise decision to give your retirement planning the proper exposure to ULIPs. It pays to start early.
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Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Reviewed By :
Prasad Pimple
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
