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ULIP Offer Guaranteed Returns?

ULIP plans can offer the most beneficial returns, but are those returns guaranteed? Read to know the answer to this question.

  • 4,569 Views | Updated on: Jun 05, 2024

United Linked Insurance Plans are one of the most preferred investment choices for investors nowadays. Its dual advantage of investment and insurance attracts investors toward it. If you are someone looking for a simple yet advantageous plan, then ULIP could be the answer to your questions.

Key Takeaways

  • ULIPs combine insurance and investment, offering long-term wealth potential.
  • ULIP returns depend on investment performance, charges, and fund options.
  • Absolute returns measure the overall increase in ULIP value, while CAGR measures annual growth.
  • ULIPs also offer tax benefits under Income Tax Act sections 80C and 10D.

ULIPs, or Unit Linked Insurance Plans, are a popular investment option in India, offering a combination of insurance and investment benefits. These plans are often seen as guaranteed returns plans due to their dual advantage nature. However, calculating ULIP returns can be a bit complex, as they depend on various factors, such as the performance of the underlying investments, charges, and the chosen fund options.

What is ULIP?

The ULIP, or Unit Linked Insurance Plan, combines life insurance security with the growth potential of assets tied to the stock market. The policyholders are the primary focus of a universal life insurance plan. Its principal purpose is to provide policyholders with life insurance while allowing them to build wealth over time with high-return investments.

As with all life insurance policies, you will have to pay recurring payments to your insurance company in return for these benefits. With the money you make from your ULIP investment, you can save for a down payment on a house, your kid’s college tuition, or even your retirement.

How Do ULIPs Work?

When you buy a ULIP, you pay a premium to the insurance company. The insurance company then allocates a portion of the premium to purchase units in the fund of your choice. The remaining portion of the premium is used to provide life insurance coverage.

The units in the fund are invested in a variety of asset classes, such as equity, debt, and money market instruments. The value of your investment will fluctuate depending on the performance of the underlying asset classes. You can withdraw money from your ULIP account at any time, subject to the terms and conditions of the policy. At the end of the policy term, you can receive the maturity proceeds, which is the sum of the value of your investment and the life insurance coverage.

Are Investment Returns Guaranteed in a ULIP?

ULIP plans are among the few investment-linked plans providing excellent returns and life insurance. A ULIP policy can give you a regular investment return while safeguarding your family. This investment is a fantastic short and long-term partner due to its low fees.

But no investment plan can offer guaranteed returns. ULIPs are market-linked investment products, which means that the returns on your investment will depend on the performance of the underlying markets. If the markets perform well, your investment will grow. However, if the markets perform poorly, your investment may lose value.

However, ULIPs can be a good way to grow your wealth over the long term, if you are willing to take on some risk. Here are some factors that can affect the returns on your ULIP investment:

Market Performance

As mentioned above, the returns on your ULIP investment will depend on the performance of the underlying markets. If the markets perform well, your investment will grow. However, if the markets perform poorly, your investment may lose value.

Investment Charges

ULIPs have various charges, such as management fees, fund allocation charges, and mortality charges. These charges can reduce your returns.

Policy Term

The longer you stay invested in a ULIP, the higher your chances of earning good returns. This is because the markets tend to perform well over the long term.

If you are considering investing in a ULIP, it is important to carefully read the policy document and understand the risks involved.

Calculation using the ULIP Calculator

The ULIP calculator is an easy tool that you can use to estimate the return you might get at maturity by entering a few details. You have to provide the frequency of premium payments, premium amount, fund type, return percentage, and length of investment. The option to divide the sum into risk-free and market-linked investments is offered by some ULIP plan calculators.

Investors should use the tool to determine the expected return rather than the precise amount because the amount calculated is a provisional figure due to the variable nature of some factors.

Can you Count on ULIP Returns?

The returns from a ULIP plan are paid out in two ways: upon the policyholder’s death and at the plan’s maturityq.

Hypothesis 1: The Policyholder Dies

  • The higher the amount promised or the value of the fund.
  • The combined amount of the guaranteed payout and the value of the underlying investment.

Hypothesis 2: The Policyholder Lives Until the Maturity of the ULIP Investment Plan

The insurance company will then provide the policyholder with the fund’s current value. As the plan matures, this amount represents the investment’s worth on that day. Therefore, it is clear that ULIPs do provide secure payouts in the event of the policyholder’s death, as illustrated by the examples given above.

Ways to Get Guaranteed Returns in ULIPs

Even though ULIP earnings are not guaranteed, its characteristics can help you achieve healthy, stable returns with no risk. This is how.

Invest for the Long Term

ULIPs are long-term investment products. The longer you stay invested, the higher your chances of earning good returns. This is because the markets tend to perform well over the long term.

Choose the Right Fund Mix

ULIPs offer a variety of investment funds to choose from. You can choose a fund mix that suits your risk appetite and investment goals. If you are risk-averse, you can choose a fund mix with a higher allocation to debt funds. If you are willing to take on more risk, you can choose a fund mix with a higher allocation to equity funds.

Rebalance your Portfolio Regularly

As the markets fluctuate, your fund mix may become unbalanced. Rebalancing your portfolio regularly will help you maintain your desired asset allocation and minimize your risk.

Use the Partial Withdrawal Facility

ULIPs offer a partial withdrawal facility, which allows you to withdraw a certain amount of money from your investment without surrendering your policy. This facility can be useful if you need money for an emergency.

Did You Know?

Section 80C under the Income Tax Act of 1961 allows for a tax deduction on ULIP donations, while Section 10D exempts death benefits from taxation.

Way Forward

ULIP returns can be a bit of a puzzle, but with the right approach, they can be a valuable part of your investment portfolio. ULIPs offer several advantages for investors. If you are on the fence about obtaining a ULIP, the information above should help you make an informed financial choice. Remember, it is not just about the numbers but about your financial goals and how ULIPs can help you achieve them.

So, take a deep breath, research, and consider speaking to a financial advisor. With patience and smart choices, you can make ULIPs work for you, helping you secure your future while chasing your dreams.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

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.

Amit Raje
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

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