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Why Are ULIPs Called Flexible Investments?

What does unit-linked insurance plan flexibility entail? Find out why ULIPs are the ideal long-term investment that makes ULIP a flexible investment option.

  • 5,020 Views | Updated on: Jan 10, 2024

In the world of financial planning and investment, there exists a class of products that are often called the perfectly balanced stones of the investment field —versatile, adaptable, and ever-changing. Among these, one term stands out: Unit Linked Insurance Plans (ULIPs). But what are ULIPs and why they are called flexible investment options? What makes them unique in a market filled with diverse investment options?

The necessity to invest in beneficial monetary instruments is at the forefront of the change due to the ever-increasing financial requirements caused by rising inflation and a fast-changing global economic landscape.

In recent years, investing has gained a new level of popularity; the notion of investment is no longer limited to real estate but has expanded to include financial investment tools with the potential for high-profit returns. As a result, you must invest in a financial instrument that allows you to shift your funds with simplicity while also providing excellent returns.

From the blend of insurance and investment benefits to the freedom of choice in asset allocation, ULIP investment plans have become the go-to choice for those seeking a truly flexible investment option. This blog will emphasize the importance of flexibility in investment options and why ULIPs are considered flexible when it comes to investing your hard-earned money.

What is ULIP Policy?

A ULIP is just not an insurance plan or an investment plan; rather, it is a flexible investment plan as a combination of the two. ULIP plan is one of the newest financial instruments available to investors. Unit-Linked Insurance Plans are insurance plans that provide insurance coverage while also producing profits through investment sources. Like mutual funds, the insurance provider launches a new plan and encourages investors to participate. Thus, ULIP plans to invest in stocks, commodities, and debt instruments, and ULIP fund performance depends on the capital market momentum.

Why are ULIPs called flexible investments

What is Flexibility in Investment Instruments?

Flexibility in investment instruments refers to the degree of adaptability and versatility that investors have in managing their investments. It relates to the range of options available to investors in terms of choosing and modifying their investment strategies, adjusting risk levels, and accessing different asset classes or markets.

Here are some ways flexibility can be described in investment instruments:

Diverse Asset Classes

Flexibility in investment instruments allows investors to choose from a wide array of asset classes, such as stocks, bonds, commodities, real estate, mutual funds, Exchange-Traded Funds (ETFs), and more. This diversification enables investors to spread their risk across various investments and adapt their portfolios to changing market conditions.

Liquidity Options

Flexibility includes the ability to buy or sell investment positions easily. Highly liquid instruments like stocks or ETFs can be quickly traded on an exchange, while less liquid assets like private equity or real estate may require more time and effort to transact. Having a range of liquidity options allows investors to adjust their portfolios based on their investment goals and market conditions.

Customization and Tailoring

Some investment plans allow for customization, enabling investors to make their investments specifically to meet their needs. For example, certain structured products or managed accounts can be designed to align with an investor’s risk tolerance, return objectives, or ethical considerations. This flexibility allows investors to align their investments more closely with their individual preferences.

Risk Management Tools

Flexibility in investment options includes the availability of risk management tools such as identifying, assessing, and formulating risk responses. These instruments provide investors with strategies to hedge against potential losses, mitigate risk exposure, or take advantage of market fluctuations. The ability to employ these tools offers greater flexibility in managing risk within investment portfolios.

Accessibility and Investment Options

Investors can pick from a range of options, including individual stocks, bonds, and funds, as well as alternative investment options like private equity funds, hedge funds, venture capital funds, or Real Estate Investment Trusts (REITs). This variety of investment plans provides flexibility in selecting investment opportunities across different sectors and asset classes.

Features that Make ULIP a Flexible Investment Options

ULIP investments offer investment flexibility to policyholders. They are insurance products that combine investment and insurance components. They allow policyholders to invest their premiums in a variety of investment funds, such as equity funds, debt funds, balanced funds, or even money market funds, depending on the options provided by the insurance company.

Here are some key aspects of investment flexibility in ULIP plans:

Fund Switching Flexibility

ULIP insurance policies include the ability to move funds, giving the policyholder many options. As an investor, you have the option of investing in debt or equity funds or in a portfolio that includes both equity and debt funds. In addition, you can switch your assets from one fund to another under this policy, and the ULIP interest rate depends on the market condition. Furthermore, these swaps may be for full or partial units, making them more relevant. During the policy years, you, as the investor, can swap between fund alternatives at any moment. The equity or debt exposure can range from zero to one hundred percent, with and without varying debt, cash, and securities combinations.

Life Cover Choice

You can determine the amount of insurance coverage you desire in a ULIP investment. The minimum life cover granted by most ULIPs is ten times your yearly premium sum. However, according to the plan and the insurance provider, you may be able to choose a Life Cover value of up to 40 times your yearly premium or more.

Partial Withdrawal Provision

Before the policy term concludes, you, as a policyholder, have the option of withdrawing a portion of your own earned fund values. This option is quite valuable since it may assist in unexpected cover costs. However, it’s worth noting that the entire sum isn’t accessible for withdrawal, and this function is only available after the stipulated five-year lock-in time has passed.

Premium Payment Structure

The premium payment term, or PPT, is the period during which you must pay your premiums. ULIPs provide you with the option of paying your premium in a variety of ways. For example, you have the option of paying the premium monthly, quarterly, annually, or as a one-time payment.

ULIP Tax Benefits and Claims

Three key benefits come with the ULIP plan. First, under Section 80C and Section 10 (10D) of the Income Tax Act, 1961, premium payments, maturity benefits, and death benefits are all tax-free up to a certain sum.

Furthermore, most investments, notably death benefits, provide lump-sum payments. A ULIP, on the other hand, allows you to get your benefits in one lump amount or installments.

Did You Know?

For staying invested for a specific amount of time, some ULIPs offer loyalty additions, which are extra units or bonuses added to your policy.

Wrapping It Up

It is important to note that the investment flexibility in ULIPs may vary among insurance companies and specific plans. Policyholders should carefully inspect the terms and conditions of the ULIPs, including the available funds, associated charges, and any restrictions or limitations imposed by the insurance provider. Consulting a financial advisor is recommended to understand the investment options and make informed decisions based on individual financial goals and risk tolerance.

    Key Takeaways

  • ULIPs are a hybrid of insurance and investment products that can provide tax and death benefits.
  • They offer investors flexibility in terms of asset allocation, risk tolerance, and liquidity.
  • They have some risks, such as market volatility and high charges.
  • It is important to compare different ULIPs and consult a financial advisor before investing.

- 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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