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A Unit Linked Insurance Plan (ULIP) has undergone various twists and turns ever since it has been a part of the market since 1971. Initially, a ULIP product was severely criticised for its low returns and high costs. However, the Insurance Regulatory and Development Authority (IRDA) launched a 3G ULIP policy with better returns and low costs in 2017. Today, a ULIP policy has evolved into a better investment product, which can be termed as a 4G ULIP policy with maximum transparency, flexibility, and affordability. Therefore, let’s understand why you should invest in ULIPs in the current era of investment:
- Affordability
A ULIP plan has evolved over the years into an affordable financial product. After the Insurance Regulatory and Development Authority (IRDA) announced new guidelines, the costs of a ULIP plan has subsequently reduced. Today, a ULIP plan offers not only low premiums but also low charges. While the premium can be paid in return of the life cover, the charges might be deducted the from the premium amount. Typically, the most common charges of a ULIP investment can be as follows:
- Premium allocation charges
It can be deducted directly from your premium value.
- Policy administration charges
It can be deducted for the administrative expenses that can go towards the management of a ULIP plan.
- Fund management charges
It can be deducted for the operation of an equity fund and debt fund under a ULIP policy.
- Mortality charges
It can be deducted for the provision of life coverage.
- Flexibility
Apart from affordability, the 4G ULIPs are also known for being the most flexible insurance product. When you buy a ULIP policy, you can have the liberty to choose the premium payment mode, types of funds, and switching feature based on your preference.
- Premium
Premium is an essential component of a ULIP policy. Since a ULIP plan can offer you a life cover for the financial protection of your family, you should pay the premium regularly. As a policyholder, you can make the premium payment quarterly, monthly, half-yearly, or annually. If you do not abide by the selected premium payment mode, your insurance company can provide you with a grace of 30 days to repay the unpaid amount. However, failure to make the payment of the premium amount can lead to the termination of your ULIP policy.
- Fund
A ULIP policy can consist of the two main types of funds based on your risk appetite and investment goals. They are as follows:
- Equity Fund
An equity fund can be a risky option of investment since it might be linked to the market. The returns generated from equity investment can depend on market performance. For instance, if the market is in good condition, you can receive relatively high returns. However, you should invest in equity funds if you have a high-risk appetite.
- Debt Fund
Unlike equity funds, a debt fund can be the safest option of investment. A debt investment can be suitable for you in case you have a low-risk appetite. Since a debt fund can involve low market risks, the generated returns can also be minimal.
- Switching feature
Although a ULIP plan is a market-linked product, you can control the impacts of the market fluctuations on your invested capital with the help of a switching feature. When you avail the switching feature, you can secure your money as well as move from one fund to another. For instance, you can choose debt funds when the market is down and shift back to equity funds when the market bounces back.
The 4G ULIPs are available online as well as offline. While purchasing a ULIP policy from the insurer can be a cumbersome procedure, buying an online ULIP plan can be convenient. Typically, an online ULIP policy can be purchased with the help of the following three steps mentioned below:
Step 1: Choose a ULIP policy based on your risk appetite and investment goals.
Step 2: Pay the ULIP premium on the online gateway.
Step 3: Purchase the selected ULIP policy.
In a nutshell, the 4G ULIPs have gained popularity in the market due to many benefits. The new-age plans can also provide ULIP tax benefits that can allow you to reduce your tax liability. With a 4G ULIP policy, you can ensure convenience, affordability, tax-efficiency, and so on. However, compare various ULIP options available in the market and select the final policy based on your risk tolerance, investment goals, and financial requirements of your loved ones.
