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  • Maximize Your Returns with New Age ULIPs

    Published on December 26, 2018

    The Government of India has taken significant measures to create awareness about the importance of life insurance. Efforts like the Pradhan Mantri Jeevan Jyoti Bima Yojana and the advances in digital platforms have made people appreciate the value of insurance as financial security, and not an investment product that they can seek returns from. Individuals across the country are understanding the importance of insurance in their life and are not measuring it with the return-generating capability any longer. However, if you are an investor looking for an ideal combination of life insurance and returns on investment in one single investment product, you may opt for a Unit-Linked Insurance Plan (ULIP). ULIPs offer dual benefits – one in the form of insurance and the other in the form of an investment product.


    When it comes to ULIPs, the awareness about the same is not as much as it should be. However, many people are talking about the benefits of the product in the right context. You might have come across product reviews where you have been told that ULIP is not for you. However, that is not the truth is very different. There is a new generation of ULIPs, which offer a great investment proposition for you. Unless you understand the benefits of ULIPs, you will not be able to take the right investment decision.


    Reduced cost of new age ULIPs


    The most important feature about the new age ULIP is the reduced cost. The charges in a ULIP include a premium allocation charge, a policy administration charge, and a mortality charge. Initially, most ULIPs carried high charges and this reduced the overall returns on the investment for an investor. However, the charges have come down substantially over the years and this is driven by the product regulations and the competition in the market. The effective charges in the new ULIPs include mortality charge, morbidity charge, cost of risk cover, and applicable taxes. These charges range around 2.25% to 3% in a tento 15-year policy term. This means your returns will be reduced with a maximum of 3% on the same.


    It has always been believed that ULIPs carry high allocation charges and this in turn, reduced the amount of returns generated on the investment. With the innovation in the industry, the allocation charges during the first five years have come down significantly.The total charge went from 57% ranging in 2006 to 20% in 2013. In 2018, this charge is zero percent,in case of an online purchase of the policy. Next is the fund management charge, which is restricted at 1.35% of the total fund value, and it is much lower than what it used to be earlier. There has also been a decline in the mortality charge, which now constitutes a small portion of the total ULIP charges. There are some ULIPs like Bajaj Allianz Life, who offer a ‘Return of Mortality Charge’ at the time of maturity, which increases the value of the investment corpus during maturity. Thus, these new age ULIPs have a minimal cost and provide comprehensive coverage on the same.


    Higher flexibility


    ULIPs are a highly flexible investment product. They allow you to easily switch from one fund to another and choose the allocation of the funds for the purpose of renewal of the premium. You have the option to partially withdraw the funds in case of emergencies after you complete the minimum lock-in period of five years.In addition, you can receive the maturity benefit for a period of five years in regular installments. Earlier, these features came with a restriction and not every policy offered free switches or complete withdrawals. Moreover,the new age ULIPs allow you to choose the best ULIP planand make a switch without visiting the agent. You can use unlimited free switch between funds and enjoy up to 95% of the fund value in partial withdrawal. You also have the flexibility to increase or decrease the policy term. You can also choose to discontinue the premium payment after five years.


    Tax benefits


    If you are still wondering that “why should I invest in ULIP”, consider the tax benefit associated with this investment option. If you have invested in a ULIP with a sum assured, which is minimum ten times the amount of annual premium, you will be eligible for tax exemptions. Again, the long-term capital gain tax is not applicable on the same. You are free to move your money between different funds without worrying about the potential tax liability.


    Apart from the tax benefit, if you compareULIPreturns in 10 years, you will notice that the returns generated by ULIPs are much higher than those of mutual funds. The new age ULIPs have a minimal cost associated with the investment, these funds can be managed conveniently. Hence, there are various benefits of investing in ULIP as compared to other investment products.


    If you seek the highest return on your investment, you need to consider few things like the ability to invest across different asset classes, minimal charges, tax benefits, and the flexibility to move between different funds and investment options. The new age ULIPs are the best investment product if you are an investor with a long-term investment horizon. Whatever your risk appetite, you will find a ULIP productthat will fit your needs. Remember that ULIPs have a minimum lock-in period of five years.If you are a systematic investor with long-term life goals such as children’s education, their wedding, and your retirement planning, ULIPs are an ideal investment option for you.