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Can ULIP Plan be Gifted?

A ULIP plan can be seen as one of the greatest financial gift one can offer. Read this blog to learn how a ULIP plan can be advantageous for the receiver.

  • 6,415 Views | Updated on: May 17, 2024

Have you ever wondered if you can gift a ULIP plan to a loved one? Unit Linked Insurance Plans, or ULIPs, have become increasingly popular as a dual-purpose financial product that combines insurance and investment. They offer individuals the opportunity to grow their wealth while providing financial protection. But can you share the benefits of a ULIP plan with someone else?

Are you still confused about the best gift for your loved ones? One of the biggest obstacles while selecting the right present is finding something beneficial and meeting the expectations of one at the receiving end. People give gifts such as clothes, shoes, technical gadgets, pets, cars, etc. But none of these presents will ever increase their value with time. How about a gift that changes their life? For instance, you can gift insurance plans!

The Dual Nature of ULIPs: Insurance + Investment

Insurance Component: With Unit Linked Insurance policies, a part of your money goes toward providing life insurance coverage. This means that if something unfortunate happens to you (like an accident or illness), your family gets a payout to help them financially.

Investment Component: The other part of your money is invested in different funds, kind of like putting your money in a savings account or buying stocks. These investments can grow over time, potentially giving you more money in the future.

How ULIPs Work: A Quick Overview

If you think of gifting your loved ones, you must understand how ULIPs operate. Here is a simple breakdown of how ULIPs work:

You Pay Regular Premiums

You pay money into your ULIP regularly, like monthly or annually. This money is divided into two parts: one for insurance and one for investments.

Choice of Funds

You get to choose where your investment money goes. You can pick from different funds based on your financial goals and risk tolerance. If you are willing to take more risks, you can choose equity funds; if you are more cautious, you can go for debt funds.

Potential for Growth

The investment part has the potential to grow over time. It is like planting a seed that could grow into a bigger tree. The returns you get depend on how well the funds you choose perform in the market.

Insurance Coverage

The insurance part ensures that your loved ones are financially protected if something happens to you. If you pass away during the policy term, your family gets a lump sum amount, which can help them cover expenses and maintain their financial shield.

ULIP as a Gift

ULIP is an excellent investment option providing dual benefits of investment and insurance cover, aided with the following benefits:

Flexibility

With a ULIP, you can pay premiums at your convenience. You can also add extra money to your premiums to boost your returns. The sum assured is set at the start of the plan, but you can increase it as needed at different life stages, such as marriage or retirement.

Transparency

ULIPs provide transparency to the customers through ULIP NAV (Net Asset Value) updates. NAV keeps you updated about the performance of your funds in the market. So you can save a check regularly and modify your investments accordingly.

Fund Switching

You can choose to invest in equity, debt, or balanced funds, including equity and debt-based investing. At any point, you can switch the funds and modify your investment to reduce the risk (due to market volatility) and gain higher returns overall.

Partial Withdrawal

Unlike other policies, ULIP offers partial withdrawal after completion of a lock-in period of five years. You can withdraw a certain amount from your account in dire need of money. Hence, ULIPs offer liquidity and protect you from a financial crisis. However, it is advised only to withdraw the amount to gain higher returns in the case of an emergency.

Tax Benefits

ULIPs offer a number of tax benefits, which is one of their key advantages. Policyholders can claim a tax deduction under Section 80C of the Income Tax Act of 1961 on the premiums they pay. Switching funds within a ULIP is tax-free, so you can easily adjust your investment portfolio as needed. The maturity benefit received from a ULIP is also tax-free under Section 10(10D) of the Income Tax Act of 1961.

Rider Benefits

You can make your policy by adding insurance riders to the existing ULIP. Unit Linked accident and disability benefit rider is an example of a rider. Due to this rider, a higher amount is offered to the family in case of the policyholder’s accidental death. It also provides life insurance cover in case of disability caused by an accident.

To Sum It Up

A Unit-Linked Insurance Plan can be considered an excellent and reliable long-term investment. Gifting a ULIP can significantly increase the value of the savings and provide financial security to your loved ones. It can help them in times of need and p[rove to be a real gift. The flexibility to pay premiums, choose funds, add rider benefits, and switch funds according to your needs allows you to attain lucrative returns.

Key Takeaways

  • ULIPs are a dual-purpose monetary tool that integrates the benefits of insurance and investment.
  • They offer flexibility in premium payments, fund selection, and switching.
  • ULIPs provide transparency through NAV updates and liquidity through partial withdrawals and rider benefits.
  • ULIPs are reliable if you are looking for long-term investment options for growing wealth and financial security.

- 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

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

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