Investment in Unit Linked Insurance Plan (ULIP)

A ULIP or Unit Linked Insurance Plan is an insurance plan that provides the dual benefit of investing to help you achieve your long-term goals as well as life protection to financially protect your family in the event of an unexpected incident. It provides Life cover plus Equity/ Debt Benefits.

The premium paid for a ULIP is divided into two parts. A portion of it is contributed to your life insurance, while the remainder is invested in a fund of your choice. You can invest in equities, debt, or a combination of the two, depending on your risk tolerance and goals.

As mentioned above ULIP is divided into two parts which means it has two components. Let’s understand this.

There are two components to ULIP Plans:

• Insurance Component
• Investment Component

The insurance component: This portion of the premium goes toward providing life insurance coverage. If you die during the period of the insurance, your beneficiaries will get a death benefit.

The investment component: This portion of the premium is invested in your preferred asset classes. The performance of these investments will decide how much money you have accumulated by the end of the policy period.

The amount of money allocated to each component depends on the conditions of your ULIP insurance. You normally have the option of allocating a portion of your premium payment to the insurance component and the remainder to the investment component.

This makes ULIPs an excellent investment alternative for you and your family’s long-term objectives.

Key Points of Investment in Unit Linked Insurance Plan

• Life cover plus Equity/Debt Benefits.
• Investment in Equity ULIP seeks high risk whereas investment in Debt Equity has lower risk.
• Investment in ULIP provides tax benefits under Section 80C upto Rs.1.5 Lakh annually. The amount received on maturity is tax-exempt.
• If Premium > Rs.2.5 Lakh then the amount recieved on Maturity is Taxable.
• The lock-in period of Investment in ULIPs is 5 years.
• 4th Generation ULIP (4G ULIP plan) are evolving days for flexibility, tax incentives, mortality charges return, switch between funds etc.
• Death proceeds tax exempt.