Frequently Asked Questions About ULIPs

A Unit-linked Insurance Plan (ULIP) is one of the most popular investment instruments, as it provides higher returns than most of the financial products available in the market. Besides this, the flexibility of switching funds, tax benefits, and partial withdrawal facility offered by a ULIP plan makes it a most sought-after financial tool.

The ongoing pandemic has made people realize the need to insure their lives and create a significant corpus for their family members so that their dependents can be financially independent even if the breadwinner is not  around. So, before we speak about the frequently asked questions related to this investment avenue, let us first understand the Unit-linked Insurance Plan meaning. 

ULIP is a life insurance plan that offers dual benefits of life insurance and investment. You have the option of investing your savings in equity, debt, or a mixture of both types of funds based on your financial goals and risk-bearing capacity.

Here are some commonly asked queries about the ULIP plan: 

• Who should invest their hard-earned money in ULIP?

People who want to start planning for a better-retired life or those who want to get settled in their life and start a family should invest in ULIP. However, they should have a risk-bearing appetite. ULIPs can help them to earn significant returns if they stay invested with a long-term perspective of at least 10-15 years. People who have recently started their professional careers should also invest in ULIP. It is advisable that they opt for balanced funds to reduce the risks associated with the market’s poor performance.

• When is the ideal time to start investing in ULIP?

There is no perfect time in particular to commence the investment journey in ULIP. However, experts recommend to begin investing at an early phase of life so that you can grow your wealth in the long run.

• How does ULIP withdrawal work?

ULIP comes with a mandatory lock-in tenure of five years, which means that withdrawals are not allowed before this period is over. If you are thinking of surrendering the policy  and withdrawing the funds as per the current ULIP NAV, you are wrong. You will get your funds only after the completion of the compulsory five-year lock-in duration. If you are planning to withdraw funds after the lock-in term, you can make use of the partial withdrawal facility to meet your financial needs. However, here, there is a limit on the withdrawal amount. Some insurers allow 10%, whereas others may permit 20% of the total premium paid to date.

• How is the ULIP Net Asset Value (NAV) calculated?

You can compute the ULIP NAV  by applying the following formula:

NAV = Total value of your current assets + the aggregate market value of your investments held to date – the total of all your liabilities divided by the sum of outstanding units

• What are the tax benefits offered by ULIP?

ULIP provides tax benefits under Section 80C of the Income Tax Act, 1961, wherein you can claim deductions for the premium paid towards the policy. Here, the maximum deduction  is capped at INR 1.5 lakh per annum. Besides this, the death benefits received by the beneficiary of the policy or the amount received on maturity are tax-exempt under Section 10 (10D)of the Act. 

ULIP plan offers substantial returns in the long run. Therefore, it becomes essential to stay invested for a minimum of 10-15 years to gain high returns. The power of compounding and investing in equity funds can help you garner a lucrative corpus to meet your long-term life goals. So, now when your doubts are clear, start investing in ULIP investment as early as possible, and make the most out of it.