ULIP-  Unit Linked Insurance Plans (2024)

Dual Benefit of Insurance and Investment: ULIPs provide both life insurance coverage and investment opportunities within a single financial product. Policyholders can secure the financial future of their loved ones while also growing their wealth through investments.

Flexibility in Premium Payments: ULIPs offer flexibility in premium payments, allowing policyholders to choose the frequency of premium payments (monthly, quarterly, half-yearly, or annually) based on their convenience and financial circ*mstances.

Choice of Investment Funds: ULIPs offer a range of investment funds, including equity funds, debt funds, balanced funds, and hybrid funds. Policyholders can select the fund(s) that best match their risk appetite, investment objectives, and time horizon

Fund Switching Options: ULIPs provide the flexibility to switch between different investment funds based on changing market conditions, investment goals, and risk preferences. Policyholders can reallocate their funds to take advantage of growth opportunities or mitigate risks.

Partial Withdrawals: ULIPs allow policyholders to make partial withdrawals from their investment funds after the completion of the lock-in period, which is usually five years. This feature provides liquidity and financial flexibility in times of need.

Top-Up Premiums: Policyholders can make additional investments, known as top-up premiums, to boost their investment corpus and take advantage of market opportunities. Top-up premiums offer a convenient way to increase exposure to the financial markets.

Transparency and Disclosure: ULIPs are required to provide transparent disclosure of charges, expenses, and investment performance. Policyholders can access detailed information about the charges deducted from their premiums and the performance of their investment funds.

Equity Funds: Equity-based ULIPs primarily invest in stocks or equities. They offer the potential for high returns over the long term but also come with higher volatility.

Debt Funds: Debt-based ULIPs invest in fixed-income securities such as government bonds, corporate bonds, and other debt instruments. They are generally lower risk compared to equity funds and provide more stable returns.

Balanced Funds: Balanced ULIPs invest in a mix of equities and debt instruments. They aim to provide a balance between growth and stability, making them suitable for investors seeking moderate risk exposure.

Money Market Funds: Money market ULIPs invest in short-term, highly liquid instruments such as treasury bills, commercial paper, and certificates of deposit. They offer lower returns but are considered safer investments.

Index Funds: Index ULIPs track specific market indices like the NSE Nifty or BSE Sensex. The performance of these ULIPs is linked to the movements of the chosen index, offering a passive investment approach.

Sector Funds: Sector-specific ULIPs focus on investing in specific sectors such as technology, healthcare, energy, etc. These ULIPs allow investors to capitalize on the growth potential of particular industries.

Guaranteed Funds: Guaranteed ULIPs assure investors of a minimum return on their investment, providing a level of security. However, the returns may be lower compared to non-guaranteed ULIPs.

Hybrid Funds: Hybrid ULIPs combine elements of equity, debt, and sometimes other asset classes. They provide diversification and flexibility, catering to investors with varying risk profiles and investment objectives.

Investment Component: ULIPs offer an investment component where a portion of the premium is invested in various funds chosen by the policyholder. This allows policyholders to participate in the potential growth of the market.

Choice of Funds: ULIPs provide policyholders with the option to choose from various investment funds, such as equity funds, debt funds, or balanced funds. This allows investors to tailor their investment strategy based on their risk appetite and financial goals.

Market-Linked Returns: The returns on ULIPs are linked to the performance of the underlying investment funds. Unlike traditional insurance policies that offer fixed returns, ULIP returns are subject to market fluctuations.

Flexibility: ULIPs offer flexibility in terms of premium payments, fund switches, and partial withdrawals. Policyholders can adjust their investment strategy based on changing market conditions and financial goals.

Transparency in Charges: ULIPs are required to disclose all charges upfront, including premium allocation charges, fund management charges, policy administration charges, and mortality charges. This transparency helps policyholders understand the cost structure of the policy.

Risk and Return Profile: ULIPs offer varying risk and return profiles based on the type of funds chosen by the policyholder. Policyholders can opt for higher-risk equity funds for potentially higher returns or lower-risk debt funds for stability.

Tax BenefitsT: ULIPs offer tax benefits under the Income Tax Act, including tax deductions on premiums paid and tax-free maturity proceeds, subject to specified conditions. These tax benefits can enhance the overall returns of the investment.

Long-Term Perspective: ULIPs are designed as long-term investment vehicles, encouraging policyholders to stay invested for the long term to benefit from the power of compounding and market growth.

Post-Amendment Tax Treatment:

ULIP policies issued on or after February 1, 2021, are no longer entitled to tax exemptions as they were previously. However, policies issued before this date continue to enjoy tax benefits.

The amendments apply prospectively, meaning policies issued after February 1, 2022, are subject to the new tax regulations as below:

If the aggregate annual premium paid exceeds INR 2.5 lakh for any previous years, capital gains tax is applicable on any income earned from the ULIP at time of maturity else it remains to be exempt from income tax.

If the person has purchased multiple ULIP PLans and total premium of year is more than Rs 2.5 Lakhs than also it is taxable at time of maturity.

Only if the aggregate premium paid in a year is less than 2.5 Lakhs (in more or more polices combined) than it is exempt

Long-term capital gains (LTCG) tax of 10% is applicable on ULIP equity-oriented investments held for more than one year, while short-term capital gains (STCG) tax of 15% applies to investments held for one year or less.

Tax Exemptions:

Despite the changes, there are still tax benefits available for ULIPs.

There is no tax liability in the event of the policyholder's death.

Premiums, maturity proceeds, and death benefits are completely tax-free if the premium is within the INR 2.5 lakh cap.

ULIPs continue to enjoy tax exemptions on premiums paid up to INR 1.5 lakh u/s 80C