Unit-linked insurance plan is a market-linked insurance plan which aggregates best insurance and investment. This type of plan is linked to the capital market and offers flexibility to invest in equity as per risk appetite. Premiums in a ULIP can be chosen and the sum assured gets calculated accordingly. This is different from any traditional life insurance plan, where the sum assured needs to be chosen and given your age, the premium is calculated accordingly.
The premium for ULIP is divided into multiple categories. The subcategories for the charges are Premium Allocation charges, Policy administrative charges, Fund management charges, etc. Mortality is charged for the sum assured chosen and the rest of the amount is invested according to the option selected by the policyholder.
There are some other charges like surrender charges, switching charges, discontinuance charges, etc. which is applicable only if the option is executed and not otherwise.
Some ULIPs and their premiums
There are many good plans out there for ULIP with different premiums.
- Aegon Life I maximize secure plan – The minimum entry age is 7 to 55 years and the minimum premium charged for this plan is from INR 24,000 to INR 36,000. The admin charges will be INR 100. The policyholder can switch 4 times in any year free of cost.
- Bajaj Allianz Future gain – Minimum age of entry is 1 to 60 years. Minimum premium charges are INR 25,000. Policy admin charges are as low as INR 33.33. The policyholder will get to switch between policies as many times as they want.
- PNB MetLife smart Platinum – Minimum premium payment for this policy is INR 30,000 to INR 60,000. Maximum admin fee you will be charged is only INR 40. Free switches are only 4 times a year.
- Max Life Fast track growth Fund – The minimum premium paid for this policy is INR 25,000 to INR One Lakh. The maximum admin fee charged to the policyholders are INR 1,500 every year.
- SBI Life Wealth Assure – The minimum premium payment is INR 50,000. You will be charged an administration fee of INR 45 every year.
- ICICI Prudential wealth builder 2 – The premium payment varies from INR 24,000 through INR 48,000. For this policy, the policyholder will be charged INR 500 every month.
Tax Saving in ULIPs
Smart tax planning is the first step for sensible financial planning. Spending on ULIP products is considered one of the most reliable tax saving options in India. Along with the money creation benefits it offers in the long term, ULIP offers you to save some tax on your income every year.
Under the Government of India’s income tax act, under the section 80C, policyholders of ULIP can save up to 1.5 lakhs for the premium payment every year. Even the maturity benefit is tax free for all insurance plan U/S 10(10D). The only condition to keep in mind for the tax saving is that the premium payment should be only 10% of the sum assured for ULIP. While declaring the tax every year, you can deduct the premiums paid from the total taxable income upto Rs 1.5 lakhs. So, ULIP gets EEE (Exempt, exempt, exempt) tax-benefit with the advantage of mark-to-market investment.
Benefits of Riders in ULIPs
Riders are the additional benefits you may buy or add to your ULIP. Opting for these riders may increase the premium.
These riders help you to customize your plan and meet your current and future needs. There are a few varieties of riders offered for ULIP.
- Accidental death and dismemberment rider –. The policyholder is paid the sum assured plus extra benefits if he/she faces accidents and injury related to the accidents.
- Term rider – Lump sum or monthly income is offered to the nominee when the policyholder dies.
- Critical illness rider – Coverages for the critical illness such as heart attack, stroke, cancer, surgery to coronary arteries for the policyholder of the insurer. The policyholder has to survive at least 30 days from the day of diagnosis of the illness. If the insured dies within 30 days, the policy will be no longer valid and will be terminated immediately.
- Waiver of premium rider – The premium payment will be waived off with this rider when the policyholder will face unforeseen difficult circumstances and will not have enough fund to pay for the premiums. Although you do not pay for your premiums, the policy will be still active.
- Critical illness plus rider – This rider covers additional covers on extra illnesses on top of the existing critical illness riders. This type of rider is not common, not all insurance providers offer this rider.
- Women Rider – Women rider offering coverages for around 29 illnesses in total for women and out of the three are related to pregnancy complications.
- Income benefit riders – In case of the death of the life assured during the term of the policy, 10% of the rider’s sum assured is paid annually to the beneficiary till the plan matures.
ULIP is a useful financial tool that can be used to bridge the gap between the various investment options along with the added advantage of significant tax savings. With all the riders provided, it is a good idea to invest in ULIP to save and make money in the long run. However, choosing the right ULIP is of utmost importance. In order to get the best deal, you can compare the various ULIPs available in the industry on Coverfox.com and then carefully choose the one which suits your needs and then continue it for the entire tenure without stopping in between! That is the best way to make the most of ULIPs!