Its Fiscal Year Ending and all we have in our priorities is tax savings and many users ask me about ULIP and so here I come with the all you need to know about ULIPs in practical terms. What it is ? How you can benefit from it? What are the features any ULIP should have? Why ULIPs are so popular?
Its Fiscal Year Ending and all we have in our priorities is tax savings and many users ask me about ULIP and so here I come with the all you need to know about ULIPs.
What is ULIP?
ULIP stands for Unit Linked Insurance Plan and it is a Life Insurance Plan and the main difference between ULIP and traditional insurance is ULIP has option in the hand of investor to select his risk profile and so returns vary like 100% equity based or balanced or debt etc.
Apart from the fact that you can select your own preferred profile of investment there is a greater flexibility in terms of premium payments which means a premium holiday is possible as well as invest surplus money by way of top ups ultimately increasing your investments.
In 1971 the UNIT TRUST OF INDIA offered first unit linked insurance plan in which out of insurance premium a small part of contribution was utilized for providing life cover and rest was invested in units.
Features of ULIP
Apart from standard insurance features ULIP provides the following added features like
- Investment and savings.
- Equity Linked returns.
- Flexibility in premium.
- Adjustable life cover.
- Tax Benefits.
- Free switches between available investment options.
- No regular premiums after 3 years.
- You can withdraw partially or wholly after 3 years.
Investment Allocation Table
There are several options within a ULIP. you can select the option that best fits in with your risk profile and helps you achieve your investment objective.
| Investment Option | Risk Profile | Debt Instruments, Money Market & Cash | Equities & Equity Related Securities | ||
|---|---|---|---|---|---|
| Min % | Max % | Min % | Max % | ||
| Assure | Very Low | 100% | 100% | 0% | 0% |
| Protector | Low | 90% | 100% | 0% | 10% |
| Builder | Low | 80% | 90% | 10% | 20% |
| Enhancer | Medium | 65% | 80% | 20% | 35% |
| Creator | Medium | 50% | 70% | 30% | 50% |
| Magnifier | High | 10% | 50% | 50% | 90% |
| Maximiser | High | 0% | 20% | 80% | 100% |
The above allocation is done by diversifying your investments into the following category of funds
| Type of Fund | Investment Profile | Risk |
|---|---|---|
| Equity Funds | Invest primarily in stocks | High |
| Bond Funds | Invest In Corporate Bonds,GOVT securities and other fixed income instruments | Medium |
| Cash Funds | Invested in bank deposits and money market instruments | Low |
Disadvantages
- No guarantee of returns
- Very high administrative charges. As high as 20% .
- Past performance may not be the way to judge the returns in future.
- You may incur losses if you do not do it wisely and keep track of it often.
Remember there is no one on this planet who is going to make you wealthy. You have to be doing it for you and so if you do invest keep track of it always.
If you have more questions post in comments. I will be more than happy to answer them.
According to me Insurance is never an investment and see why here.
Shabbir, I have invested 10k per annum in ULIP (LIC) that’s 30k investment as of now & no more payment to be made. Now the questions is..when should i withdraw my amount & where can i track for higher returns from LIC.
Venkatesh, You should be able to track that on the official website. About higher returns you have to understand your risk profile and invest accordingly
Shabbir, Thanks for the inputs. But I have invest 30k per annum on same ULIP plan, which means I have invested 30k*3=90k till date and its maturity value is around 116k today. Do you still think I should continue investing in Bajaj Allianz CENTURY PLUS for another couple of years? If yes, then I need to invest same 30k per annum as ULIP premium.
Also I have checked with my Bajaj Allianz Agent about ULIP withdrawal now. But it looks like I need to pay around 20-30% of my first year premium as some charges. So I am thinking of going for another few year with same ULIP policy.
Let me know if my decision is correct or not?
Suraj, I could guess that but I did not wanted to play the guessing game because I was certain investment cannot double in ULIP that easily. Switch to MF as I have never been a fan of insurance and you can see the details why here
Hi Shabbir,
Thanks for the nice article on ULIP. I am looking for your valuable inputs of my query on ULIP. I have invested Rs 30k per annum in Bajaj Allianz Centure Plus ULIP plan since December 2007. Now the total return on same in around 116k, also the 3 years lock-in period is over. By this investment I ma getting both tax benefits as well as some return. Do you think I should continue investing in same plan or I should go for opt for withdrawal? Currently I don’t have any requirement of money as such.
Your valuable suggestion is highly appreciated. Thanks,
Suraj, 30k is 116k and so I will suggest you to remain invested because your portfolio is almost 4 times in 3years. You have large cap heavy weight and so you should do the same as of now but when the market is close to highers again switch back to liquid plans and protect your profits.
Hi Shabbir,
Thanks for the nice post on ULIP. Your really doing great job.
Need some of your valuable advice on same. I have invested Rs 30k per annum in Bajaj Allianz CENTURY PLUS ULIP plan on December 7th 2007 with following allocation (and I can switch it as per market performance)
ACCELERATOR MID-CAP FUND- 5%
EQUITY INDEX FUND II- 90%
LIQUID FUND- 5%
Now the total return on same is around 117k and also it has completed the 3 years lock in period. Do you think I should go ahead and with the money or just keep on investing for another 1-2 years? I know I should have distributed of 30k amount to smaller and invested in multiple funds, but as I had already started the same investment 3 years ago and currently I am not looking any money to be withdrawn. So, do you I should continue investing on same?
Appreciate your valuable input on same. Thanks.
Hi,
I have three ULIP (Birla Sunlife, Kotak Mahindra and Aviva).
The policy of BSL is 3 yrs old, Kotak Mahindra and Aviva are 2 and 1.5 years old . I want to stop paying premium and also want to when it is beneficial to close these accounts.
Please respond.
Regards
Rajesh
9971603339
Ask them about what and how you can do that.
Nice article on ULIP.Understand more about ULIP visit investmentbazar website and read the difference between ULIP and Mutual Fund.