ULIP Archives -

What Are The Different Types of Ulip?

Wed, 01 Mar 2023 17:23:23 +0000

The Buyt Desk

ULIP, an acronym for Unit Linked Insurance Plan is a combination of life insurance policy and investment. Therefore, it is an ideal choice for a policyholder or a beneficiary as they get to benefit from one investment. Some amount invested in ULIP includes the insurance premium and gives insurance to the policyholder. However, some amount goes straight towards investment in the financial market.

Types of ULIP

There are different types of ULIP and these are described below.

Equity

In this ULIP, the invested amount is used for purchasing the equity shares of various companies. Since the investments are connected to fluctuations in the financial market, this type of ULIP is considered risky. But, there are also higher chances for growth. So, this ULIP is a perfect choice for risk-friendly investors who are expecting higher returns.

Debt

In this type of ULIP, the amount goes into debt instruments including debentures, fixed-income bonds, government bonds, corporate bonds, etc. The risk in this ULIP is comparatively low. The investor receives moderate returns.

Liquid Funds

Investors having low-risk tolerance find this type of Unit Linked Insurance Plan an ideal choice. It meets the investors’ short-term goal because its maturity period differs from weeks to some months. It is also considered to have strong credit ratings which further declares it the best low-risk investment option for investors. The amount in this ULIP is invested in money markets like treasury bills, CDs (certificates of deposit), or call money.

Single and Regular Premium

Investors in this ULIP have to pay the premium just once when they are buying the ULIP. However, they should more often pay premium charges based on the regular ULIP type. They can select a monthly, quarterly, or annual plan for premium payment.

Life-Staged ULIPs

Under life-staged ULIPs, investors’ risk factor reduces with their increasing age. In the starting phase, a huge part of the investment amount goes into equity, and the reduced part moves into debt. As the investor grow older, more of their investments transfer into debt instruments and less they carry the equity.

Guaranteed & Non-Guarantee Plans

In a guaranteed ULIP, the investor receives a better return over long-term investments. Guaranteed ULIP would be the right choice if the investor wants to save. That’s because the policyholder receives negligible exposure to equity funds.

Investors under non-guarantee ULIP receive better exposure to equity funds. This eventually provides investors with the increased possibility of growth they want to create wealth. They will also get a wide range of options to select from.

Balanced Funds

Investors who wish to have a lower risk and receive increased returns can opt for balanced funds Unit Link Insurance Plans. This type of ULIP has lower risk involved than a pure equity plan. Some ULIPs invest in equity as well as debt instrument. Such investments are split into two proportions – equity and debt instruments.

Cash Funds

Under this type of Unit Linked Insurance Plan, the risk factor is almost insignificant. So, it is an excellent choice for risk-averse people. But, the returns are comparatively lower than other ULIPs.

Final Thoughts

All these are some important types of ULIPs. It shows how you figure out a specific ULIP according to your financial planning and risk appetite. For example, to reduce the risk, you can choose equity funds or debt and select a risky one. However, many other alternatives are also available at the same time to choose from accordingly.

The post What Are The Different Types of Ulip? appeared first on .

How Non-ULIP Traditional Insurance Policies Will Be Taxed?

Sat, 18 Feb 2023 16:43:54 +0000

The Buyt Desk

Insurance plans with hefty premiums will be now taxed. Non-unit linked insurance plans (ULIP) with more than Rs 5 lakh premium will no longer enjoy tax exemption. The objective is to restrict income tax exemption from proceeds of insurance policies having extremely high value.

From April 1, 2023, if the aggregate premium for non-ULIP life policies is higher than Rs 5 lakh, then the individual will have to pay tax on it. Though the claim received on the demise of the insured person will remain tax-free. Insurance policies issued till March 31, 2023, will also remain unaffected.

You could have one or more insurance policies where the aggregate premium is more than Rs 5 lakh annually, the sum received will now be taxable. Earlier ULIPs having a yearly premium of more than Rs 2.5 lakh annually was made taxable in the budget 2021. Experts said the government’s new move is negative for the insurance industry.

The bright side of this decision is that it will discourage people from buying a high-value traditional insurance plan. It will enhance the emphasis on term plans and pure risk covers.

In the run-up to the budget insurance industry expected that the income tax deduction under Income Tax Act 1961 will be revised. People will get more incentive to invest in insurance. On the contrary, the budget imposed a tax on non-UlLIPs.

The industry feels that this will negatively affect the insurance business. Also, people falling under the new tax regime and having an income of up to Rs 7 lakh in a year will not have to pay any tax. Eventually, this will have an undesirable impact on the insurance sector.

Finance Minister Nirmala Sitharaman made it clear in her budget speech that this provision is an attempt to prevent large tax savings by ultra HNIs via insurance policies.

The post How Non-ULIP Traditional Insurance Policies Will Be Taxed? appeared first on .

Should You Invest In ULIP?

Sun, 06 Nov 2022 16:12:41 +0000

The Buyt Desk

ULIP is a financial vehicle that is both an insurance and investment portfolio. It is considered to be a good financial instrument that can help accumulate funds for children’s higher education and retirement planning.

What is ULIP Plan?

ULIP is an abbreviation of Unit Linked Insurance Plan. It is a multi-faceted life insurance product. It is a life insurance and investment combination. A policyholder needs to make regular premium payments just like any other insurance plan. A part premium is utilized to provide life insurance coverage and the rest is pooled with the assets accumulated from other policyholders. This pooled amount is invested in financial instruments such as equity and debt just like mutual funds. ULIP provides you with financial security against emergencies and grows your money as well.

What are the benefits of investing in ULIPs?

ULIP needs you to make small investments and get larger returns as your small fractions of money grow into a lump sum. This is the magic of compounding. There are ULIPs designed just to cater to your child’s education. As per your requirements, you can withdraw the amount partially. ULIP comes with tax benefits as an added advantage.

What are the Eligibility Criteria for Child ULIP?

You are allowed to invest in Child ULIP plans only when you fulfill the criteria of minimum and maximum requirements for age. Each policy specifies the age range for the investor which must fall in the range at the policy’s maturity.

What documents are needed for a ULIP application?

A proposal or application for insurance.
Age proof
KYC documents like – Identity proof, address proof, etc.
Other Documents

The Insurance Company can ask for additional information or documents based on

the amount of coverage applied
the premium that you will be paying
your profile, your lifestyle, habits, family history, etc.

Investments in child ULIPs

Nowadays, parenting is not easy and it comes with huge responsibilities. Financial management is one big task as you need to secure your child’s future. Child ULIP helps you with this as it has several benefits like life insurance, building corpus, death cover, and others. On the demise of the parent or guardian, your future premiums are waived off and the insurance company continues to invest this money on your behalf.

Maturity benefits from child ULIP plans –

the assured sum goes to the parent or guardian
on the demise of the parent or guardian, the assured sum is handed over to the child

Portfolio switching between debt and equity is also possible in ULIPs. Partially withdrawals are allowed before maturity but you will lose a portion of your returns. They have a lock-in period of 5 years from the starting date of the ULIP. After this period, the policy can be surrendered and expenses like stamp duty, maintaining, and issuing the policy will be deducted by the insurance company.

Investing in ULIP for long-term expenditures

Human life expectancy is increasing with advancing medical science and so is the non-earning period of an individual’s life. So everyone needs to plan for their retirement. ULIP is designed for goal-based planning and investment can be done accordingly. ULIP plans can be brought to fulfill specific financial goals. The lock-in period makes investors disciplined and encourages investors to systematically creation of wealth for the desired financial goals.

Advantage of ULIP

ULIP allows an investor to switch between debt and equity funds. This can be done based on an investor’s risk appetite. Based on the extent of risk the investor can take in the market and his/her long-term financial goals, investments can be made in debt or equity funds or a combination of both. Experts advise for a long-term investment period, investors can take more risks at the start by investing in an equity fund, and then switch to debt funds when nearing maturity. This way of managing the portfolio is known as ‘Years to Maturity’ based portfolio management. This way you can build a good corpus for both the child’s future (education, marriage, healthcare) and your retirement.

The post Should You Invest In ULIP? appeared first on .

Tax on ULIP – Government Notifies New Rules

Sat, 22 Jan 2022 12:33:45 +0000

The BuyT Desk

Unit Linked Insurance Policies (ULIPs) are no more tax exempted. The government in the Finance Act (Union Budget) 2021 had announced capital gain tax on high premium ULIPs. It was said that ULIPs with premiums exceeding Rs 2.5 lakh will be taxed. The main reason behind this step was that high net worth individuals were paying high premiums and enjoying tax exemption. Such exemption didn’t prove to be of any benefit to small and genuine cases of life insurance and on the contrary, helped the rich in evading the tax.

What is ULIP?

Unit linked Insurance policies are one of the common investments which give a dual benefit of investment and insurance through one product. The premium paid towards a ULIP plan gets divided towards an insurance cover and to a fund investing in equity, debt or a combination of the two. The return of ULIP depends upon the performance of the fund opted by the investor.

Government Issued New Tax Rules on ULIP

The Central Board of Direct Taxes(CBDT) announced the rules of ULIP taxation on 19th January 2022. The ULIPs will be taxed as per Clause (10D) of Section 10 of the Income Tax Act, 1961. Three provisions have been inserted in Section 10 –

(i) The sum received from a ULIP issued after 1st February 2022 will not be tax exempted if the premium paid is above Rs 2.5 lakhs.

(ii)Not only the ULIPs brought after 1st February 2021 with premium above Rs 2.5 lakhs will be taxed but if the premium of old and new ULIP aggregates to Rs 2.5 lakh of premium in one year then this would be taxed.

(iii) In case the sum assured is received by the nominee after the death of the policyholder then the ULIP maturity will be tax exempted.

How will ULIP be taxed?

A new income tax rule 8 AD has been introduced to compute the capital gains tax on ULIPs. The difference between the sum received from the ULIP scheme and the premium paid will be considered as capital gains in the first instance and then the gap between incremental proceeds and premium paid will be used for computing the tax. Gains of above Rs 1 lakh will be taxable at 10% as long term capital gains tax, whereas short term gains will be at a flat rate of 15%. Apart from the capital gains tax, securities transaction tax (STT) will be levied on the purchase of ULIP irrespective of the purchase date.

The post Tax on ULIP – Government Notifies New Rules appeared first on .

6 Things to Consider Before Choosing a ULIP

Tue, 15 Jun 2021 08:00:36 +0000

The Buyt Desk

A Unit-Linked Insurance Plan (ULIP) offers life protection along with investment options. This insurance product helps you to fulfil your long-term financial goals. The best features of ULIP are the flexibility to switch the investment between different funds and a short lock-in period. As for any investment, analyzing your risk profile, financial goals, and financial capacity is necessary before buying a ULIP. Nonetheless, you cannot buy any ULIP. Thoroughly understand and evaluate the pros and cons of a plan before purchasing. Below is a list of features to consider before choosing a ULIP.

Fund options

You may be aware that a ULIP allows you to change the fund type between equity, debt, and balanced. However, everything has a cost. Only 2 to 3 free of charge switches are available in a year. Evaluate different plans based on the number of free switches and thereafter charge per switch while deciding on a ULIP. Also, a plan that has more fund options is better than the one with limited options.

Investment strategies

ULIPs offer different investment strategies in addition to the possibility of switching between funds. Automatic Transfer, Target Asset Allocation, Lifecycle-based Portfolio, and Trigger Portfolio are some of the strategies. Choose a plan with the investment strategy best suited for your financial goals.

Premium payment options

You can opt for a ULIP that provides flexibility for paying the premium. In the limited premium payment option, you select the number of years (5 to 7 years) within which you will pay the premium. As the name suggests, the regular premium payment option requires you to pay a premium throughout the term of the policy at regular intervals.

Policy term

An ideal plan will allow you to choose the policy term. A ULIP with a term of 5 to 20 years is advantageous over a ULIP with a term of 10 to 20 years.

Performance of the plan

Check the historical data before selecting a ULIP. What kind of returns has the plan generated in the past? Can the probable returns satisfy your financial goals? Is the performance of the ULIP fund comparable to the benchmark index? Answers to these questions will help you decide on the best ULIP to buy.

Charges

The charges associated with ULIPs are regulated. Nonetheless, compare the administrative charges of different ULIPs before choosing one. A ULIP having only fund management and mortality charges will be ideal. Ensure that the premium allocation charge is zero so that the entire premium is invested. Also, do not forget to compare the surrender charges of different ULIPs. Usually, there is no surrender charge after the lock-in period.

Novice investors, without knowledge of the share market, can experience market gains through a ULIP. In fact, the number of variable investment choices in ULIPs is many. Moreover, an expert fund manager takes care of the portfolio. These benefits along with a life cover make ULIP a good financial product. Following the above pointers, you can buy the ULIP most suited to your financial objectives.

The post 6 Things to Consider Before Choosing a ULIP appeared first on .

An Ultimate Guide to a Unit Linked Insurance Plan (ULIP)

Fri, 26 Feb 2021 04:53:32 +0000

The BuyT Desk

What is ULIP?

A ULIP (Unit-linked Insurance Plan) is a market-linked insurance product. It provides the benefit of life insurance and at the same time its an investment. A ULIPs requires the policyholder to make regular premium payments of which part payments are utilized to provide insurance coverage. The unutilized payments are pooled with the funds from other policyholders and invested in financial securities i.e. equity and debt. Therefore, life insurance under ULIP can help you build a corpus for future financial requirements like retirement, a child’s education, and a wedding.

How does a ULIP work?

A ULIP pools money from different policyholders to create a fund. A dedicated fund manager then chooses a specific investment option as per his/her investment plan. The investment options considered for a ULIP are equity mutual funds, debt mutual funds, or hybrid mutual funds. The investor/ policyholder can choose between different ULIPs based on the fund manager’s investment plan. ULIPs offer an advantage to the investors in terms of switching the fund preference as per their needs in the investment duration.

Let us understand this with examples. Supposedly, you have diverse sources of income like a regular job and rent from properties. Now, you are ready to take risks and experience market-linked investment. In this case, you can opt for hybrid funds as an investment option under a ULIP. However, for some reason like the COVID pandemic, your rental income has been compromised. In such a scenario, you can opt for less risky funds like debt funds under a ULIP.

What are the features of a ULIP?

Lock-in period: ULIPs have a fixed lock-in period of 5 years. However, it is best to stay invested for the complete period of the plan (10-15 years). This ensures that you gain good returns.
Partial withdrawal: Partial withdrawal is possible during the lock-in period. You can surrender the policy while in the lock-in period but the amount will be received at the end of the lock-in period. Some insurance companies allow partial withdrawal during the lock-in period but only a fixed percentage can be withdrawn.
Payment: On purchase of a ULIP, you require to make an initial lump sum payment. Further, the premium is paid yearly, semi-yearly, or monthly depending on the plan.
Flexibility: ULIPs offers the flexibility to switch your fund preference. Also, it allows you to invest additional premium along with regular premium.
Taxation: Like PPF, ULIPs came under the EEE category but this has changed in the recent budget. From 1 February 2021, if your premium or aggregate premiums for ULIPs exceed Rs.2.5 lakhs then capital gains tax will apply. For the policy held up until 1 year, a short-term capital gains tax of 15% will apply. Long-term capital gains tax of 10% will apply for policies held for more than 1 year. Additionally, upon maturity or surrender of equity-linked ULIP fund to the insurance company, a security transaction tax will also apply. There is no tax deduction from the amount paid to the nominee in the case of the death of the insured person.

What are the charges of a ULIP?

There are different types of charges for a ULIP that are deducted from your premium. It includes administrative charges, fund management, surrender charges, partial withdrawal, etc. The charges depend upon the insurance company. However, as per the guidelines of IRDAI, the insurance company distributes the charges evenly over the lock-in period. This ensures that the insured does not bear the burden of high charges at the beginning of the policy.

When and if you decide to invest in a ULIP, reap the maximum benefit by keeping a medium to high investment horizon and using the flexibility of switching the fund preference according to your requirement.

The post An Ultimate Guide to a Unit Linked Insurance Plan (ULIP) appeared first on .

ULIP Archives -

What Are The Different Types of Ulip?

Types of ULIP

Final Thoughts

How Non-ULIP Traditional Insurance Policies Will Be Taxed?

Should You Invest In ULIP?

What is ULIP Plan?

What are the benefits of investing in ULIPs?

What are the Eligibility Criteria for Child ULIP?

What documents are needed for a ULIP application?

The Insurance Company can ask for additional information or documents based on

Investments in child ULIPs

Maturity benefits from child ULIP plans –

Investing in ULIP for long-term expenditures

Advantage of ULIP

Tax on ULIP – Government Notifies New Rules

What is ULIP?

Government Issued New Tax Rules on ULIP

How will ULIP be taxed?

6 Things to Consider Before Choosing a ULIP

The Buyt Desk

Fund options

Investment strategies

Premium payment options

Policy term

Performance of the plan

Charges

An Ultimate Guide to a Unit Linked Insurance Plan (ULIP)