GIVE AND TAKE: The investment avenue provides dual benefit of market linked return and life insurance cover to investors
As the famous saying suggests "Don't put all your eggs in one basket" - The way to a successful portfolio is making diversifying investments. It is significant for the investors or financial advisors to make sure that there is a good mix of assets in their investment portfolio so that a balance is maintained. Holding a comprehensive range of investments helps to lower the overall risk for an investor.
Everyone has a dream about their life and for their loved ones. You know where you want to live, the lifestyle you want, places you want to travel. You work hard and earn to accomplish these dreams and provide a better future for your loved ones. However, in order to achieve a better life, you always need to plan ahead. Have you ever stopped to calculate how much exactly it would cost you to achieve that desired lifestyle? To achieve desired goals at the right time-frame ULIPs were introduced in the market. It is a great investment idea for aggressive investors which provides them with dual benefit of market linked return and life insurance cover rolled in one.
ULIPs fulfil your need for both investment and protection. Apart from investing in market linked funds, ULIPs primarily provide life cover ensuring a greater scope for the family of insured. This means family gets financial compensation in case of sudden death of the insured person. Some investors may argue that extent of Life cover available in ULIPs is not as high as may be provided by term insurance plans, but the fact that it ensures a cover in times of sudden death cannot be ignored.
Minimal charges
Each investor deserves to know about the charges involved in any investment they are making. Like any other financial products, ULIPs have charges associated with it too. But the good news is that these charges have reduced over the years by IRDAI. ULIP products are transparent in this regard. Insurance companies disclose all the details of each charges for the service they provide. ULIPs have four broad categories of charges that is premium allocation charge, fund management charge, policy administration charge and mortality charge. With the launch of ULIPs in the online market, there are no charges for premium allocation and policy administration charge as there is no mediator involved. And the investors get the mortality charge back once the plan matures, indicating ULIP as a unique investment option with a free life cover. Also with time, FMS charges got capped at 1.35% per annum.
Systematic investments
ULIPs give you a range of investment options and encourage you to invest in a disciplined manner. The structured charges, value of investment and expected IRR based on 4% and 8 % rate of returns, for the complete tenure of the policy are shared with you before you buy a product. Along with the return rates, ULIPs offers a complete selection of high, medium and low risk investment options under the same policy. Policy holder can make a decision, completely based on their risk appetite.
Switches between funds
Depending on the market trend, most insurance companies allow investors to move their accumulated funds from one fund to another depending on your financial priorities and investment outlook as many times as you want. You may switch between available funds at any time during the policy term, subject to a minimum switch amount of Rs 2000 or Rs 5000 depending from insurer to insurer. Most people with good knowledge of market and the investment options available in the market prefer to exercise this option after making an informed decision. Switches between funds is known to be the best way to capitalize on the investment opportunities and is an aggressive scheme for those who seek to get higher returns. In addition to the other features, ULIPs offer remarkable good tax savings on withdrawals which is exempted under section 10(10D). The investment made in ULIPs are also tax free under section 80 C (up to Rs 1.5 lakhs). Saving on income tax is definitely one of the advantages as one gets tax rebate on premiums paid.
Higher returns
Since the charges of ULIPs have become very low, maximum of the premium amount is being allocated to the chosen funds. As the premium allocation has increased, the returns have increased too. Nowadays, customers are getting attracted to the returns provided by modern ULIPs.
The writer is chief business officer- Life Insurance, Policybazaar.com.
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