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What are the minimum and maximum investment in ULIP? Would the Whole Amount Insured in The ULIP Insurance be Invested in the Market?

Companies have different minimum and maximum investment requirements for ULIP insurance. In general, though, ULIP investments can be made for as little as 1500 per month or ₹1,50,000 per year.

  • Mar 16, 2022
  • 2,386 Views

Investing in ULIPs, on the one hand, is certainly a wise investment decision to make, but on the other hand, things can be tricky if you are unaware of all the details related to a ULIP policy. One of the most common and equally important queries related to ULIP investment is the lower and upper limits of the ULIP plans.

What are the minimum and maximum investments in ULIP?

There is no specific answer to this question. The minimum and maximum amount that one can invest in ULIP policies vary from company to company. However, in general, the lower limit of premium for ULIP investment can be as low as a minimum sum of ₹1500 per month or ₹1,50,000 per year.

Lower Cap = ₹1500/month or ₹1,50,000/year

Also, generally, there is no cap on the premium amount for maximum investment, and the upper cap can be any amount that an individual is capable of paying as per their investment goals and plans.

Upper Cap = No Limit

Other than the upper and lower limits, while planning a ULIP investment strategy, you must note that most ULIP plans have a lock-in period of 5 years, and it is advised that the investors should pay the premiums for the complete term to make the maximum out of ULIP benefits. However, if you break out from the ULIP policy before the lock-in period, you will receive the fund value after certain deductions or surrender charges.

How Does ULIP Work

Life Insurance

When you pay the plan’s recurring premium, some of it is invested in life insurance and the rest in the funds of your choosing (whether equity, debt or hybrid).

You receive the total value of the policy across all the funds you selected when the policy matures. However, in the tragic event of your passing, your nominee or beneficiary will be given the greater of:

i) Fund value

ii) Sum guaranteed

iii) 105% of premiums paid as of the death date (the amount received as death benefit also depends on whether your policy is a Type 1 or Type 2 ULIP).

Charges

Insurance companies take some costs from your ULIP plan, including mortality costs, switching costs, fund management costs, and administration costs.

Lock-in-period of ULIP

Although ULIP plans allow for partial withdrawals, these can only be used once the lock-in period has passed, which is five years following the policy’s start.

Taxability of ULIP

In the Annual Budget 2022, the Government of India made some amendments to the taxability of ULIP, to prevent its misuse. As per the recent amendments applicable from April 2022 under Section 112A of the Income Tax Act, any return from a ULIP investment where the premium is less than or equal to ₹2,50,000 per annum is exempted from tax.

However, if the annual premium sum exceeds ₹2,50,000, then the returns are taxable under different provisions of the Income Tax Act related to ULIP. To help you determine the amount correctly, you should consider using a ULIP tax calculator. A ULIP tax calculator will help you find tax deductions on higher premiums.

Why invest in ULIP?

Here’s why you should consider investing in a ULIP plan:

  • The dual benefit of investment and insurance
  • Triple E-benefit (Exempt-Exempt-Exempt). No tax levied for investment, proceeds, and withdrawal
  • Top-up advantage (add extra money)
  • Flexible switching options
  • Structured charges (pre-defined)

In addition, the new ULIP tax treatment has also increased the chance of keeping this investment tool free of scams. Thus, improving its quality and benefits.

So, if you are looking to make investment gains while having the ULIP benefits of insurance, you must be well aware of the taxability of ULIP and carefully read the related document before investing higher amounts in it.

ULIP Benefits

Some of the major benefits that make ULIPs a lucrative investment product includes the following:

  • Flexibility
  • Transparency
  • Financial goal-based savings
  • Considerable tax benefits on investment
  • Liquidity options

Having understood a great deal about these policies, another concern that raises in most policyholders’ minds is: Would the whole amount insured in the ULIP insurance be invested in the market?

The one-word answer to this question is no! The whole amount insured in the ULIP policy will not be invested in the market. Generally, in the case of any insurance policy, the premium is divided into three different parts:

1. Pure life premium

2. Expenses

3. Amount left to be invested

In the case of ULIP, generally, 1 part is for insurance, while the other part is taken out for investment into the markets, based on the policy guidelines. So, understand the nitty-gritty, weigh the pros and cons, and invest in the right plan that helps you achieve your financial goals.

FAQs

1.What is the fund value in ULIP?

In a ULIP, the policyholder can select from a variety of funds to invest in depending on his risk tolerance and the state of the market. The fund value is the total monetary value of the policyholder’s unit.

2.What is the sum assured in ULIP?

In the event that the policyholder passes away during the policy term, the insurer agrees to pay the policyholder’s family a specific sum of money. The sum promised is the name given to this money.

3.What does ULIP mean?

A unit-linked insurance plan is a service provided by insurance providers that combines insurance with investment opportunities for investors.

4.How to maximise ULIP returns?

The greatest method to increase the profits on your ULIP investments is to diversify your holdings across various asset classes. This will assist you in building a diverse portfolio so that, in the event of a loss in one asset class, it can be offset by gains in a different asset class.

5.What is the limit of ULIP?

Only if the premium for both the new and old ULIPs does not exceed ₹2.5 lakh in any one year during the period of the ULIP may the assessee make an exemption claim. The amount received from such a ULIP will not qualify for Section 10 exemption if the premium due in any given year exceeds ₹2.5 lakh (10D).

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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