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The lesser-known facts about ULIP policy that customers should be aware of?

A potential investor should carefully review the plan before choosing a ULIP plan. Read ahead to learn some lesser-known facts about ULIP.

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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

    Key takeaways

    Lesser-known facts about ULIP policy
    Unit-linked insurance plans (ULIPs) were created to give policyholders access to insurance coverage and market profits. Income funds, which invest in debt securities with a modest level of risk, and balanced funds are among the most popular ULIP policies. To keep risk at a moderate to a high level, the money is invested in both debt and equity, large-cap funds.

  • Facility for exchanging funds
  • Extension of the maturity date
  • Amount due upon death
  • Selecting the appropriate sum promised to receive tax benefits
  • Units are fewer

Unit-linked insurance plans (ULIPs) were created to give policyholders access to insurance coverage and market profits. Income funds, which invest in debt securities with a modest level of risk, and balanced funds are among the most popular ULIP policies. To keep risk at a moderate to a high level, the money is invested in both debt and equity, large-cap funds.

Despite investing in big, well-established businesses and growth funds, where money is placed in very risky small and mid-cap funds, where market risk is significant. The nominee will receive the sum promised in the event of the policyholder’s premature death because these plans provide protection in addition to market returns.

A prospective investor should carefully review the plan before choosing a ULIP plan, nevertheless. The investor should be aware of a few obscure details regarding these schemes.

The following five facts state why one should carefully review the ULIP.

Facility for exchanging funds

Depending on the current market and economic conditions, a policyholder can move his money from one plan to another to lower risks and increase returns. Such switches can be requested online or by emailing the business. Online switching is typically less expensive or, depending on the terms and conditions of the specific plan, even free for a finite number of switches.

Extension of the maturity date

It is important to choose a policy that offers the opportunity to postpone the maturity date by deferring either the entire maturity amount or through payments, with the possibility of withdrawing the remaining amount at any time, as the maturity amount relies on the state of the market.

If the maturity date happens on a day when markets are at deficient levels, this will allow the investor to minimize the loss. The investor might earn a significant return through deferment by taking the maturity amount out when the market conditions improve.

Amount due upon death

Investors in ULIP policies typically have a choice in how he wants to receive the cash assured as a multiple of the annual premium. Depending on the terms and conditions of a certain policy, options may include choosing the sum assured as five times the yearly premium, 7, 10 times, or 20 times. It is advised to select a larger sum assured even if a higher premium is required because the amount payable upon death is greater than the sum assured plus fund value.

Selecting the appropriate sum promised to receive tax benefits

ULIP policies qualify for the section 80C tax deduction and have tax-free maturity and death claims if the sum guaranteed is ten times the yearly premium. Therefore, the investor should not choose a sum secured less than ten times the annual premium to receive the ULIP tax benefits.

Units are fewer

By taking away an equivalent number of units from a policyholder’s portfolio, the costs associated with operating a ULIP scheme are deducted. These costs include premium allocation charges, fund management charges, policy administration charges, mortality charges, partial withdrawal charges, switching charges, premium redirection charges, discontinuance charges, and other charges.

Therefore, before selecting a plan, a potential investor must carefully consider the quantity and magnitude of fees because high fees have a negative impact on return. To maximise the gain, it is also recommended to carefully manage the policy to prevent racking up unneeded fees.

Conclusion

You must not believe that dangers and market volatility accompany the ULIP benefits. The utilization of ULIPs’ lesser-known features, such as switching between funds based on their market performance, selecting an appropriate sum assured and maturity date, and avoiding transactions that would result in unneeded ULIP charges, can maximize your profits from a ULIP plan. Considering these details, you may confidently decide to include a ULIP plan to enhance your wealth.

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

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- A Consumer Education Initiative series by Kotak Life