Unit-Linked Insurance Policy (ULIPs) are a product offered by insurance companies that provide insurance and investment under a single integrated plan. The rules regarding ULIP plans are set by the Insurance Regulatory Development Authority of India (IRDAI). IRDAI has revamped the rules governing the ULIP schemes with an intent to make it more favourable to customers. The new rules offer significant benefits and flexibility to policy-holders. The policyholders can benefit in terms of the revival of policies, minimum guarantee on surrender, partial withdrawals from unit-linked pension policies and life cover.
Regulatory changes in ULIPs
- According to the new rules, policyholders can withdraw up to 25% of the fund value from pension ULIP policies. However, it must be noted that the withdrawal is allowed only after the completion of mandatory lock-in period of five years. Also, the withdrawal of the fund is only permitted for specific purposes such as higher education, managing wedding expenses, medical expenses, property purchase, construction of house, etc.
- The regulator has also proposed to guarantee the surrender value irrespective of the premium paying term, if the policyholder has paid a minimum of two premiums. This will make insurance companies more responsible for right selling.
- As per the regulatory changes, on completion of 5 years of the policy, policyholders can opt to reduce their ULIP premium by up to 50 percent of the original premium. However, it must be noted that if the premium is reduced, it cannot be increased again in the future.
- Insurance companies offer various riders with ULIPs. According to the new rules, insurance companies are allowed to charge extra premium if the policyholder opts to buy riders with ULIPs.
It is essential that individuals who are looking forward to investing in ULIPs, should make note of these regulatory changes in ULIPs. As a result of these regulatory changes, Unit-Linked Insurance Plans (ULIPs) have emerged as a game-changer in the market. Let us have a look at some of the major benefits of ULIPs:
ULIPs are long term investment that provide better returns as compared to traditional fixed deposits. Higher ULIP plan returns and low risk associated with ULIPs, make them a preferred investment option in the volatile market.
Under section 80(C) of the Income Tax Act, the investments made in ULIPs are eligible for tax deductions. You can also receive a tax-free Maturity Benefit, under Section 10 (10D).
A ULIP plan gives you the flexibility to invest your money according to your financial requirements and risk-appetite. The different types of ULIP investments categorized according to the risk are mentioned below:
- Equity funds
- Income, fixed-interest, and bond funds
- Cash funds
- Balanced funds
If you have a high risk appetite, you can consider investing in equity funds. On the contrary, if you have a low-risk appetite, you can opt for debt funds or balanced funds. Since ULIPs also provides a life cover, you get the flexibility to choose your sum assured at the beginning of your policy.
Now that you know what is ULIP policy, ensure that you make the most of it and invest wisely. You must ensure that you compare various ULIP plans offered to you by different insurance providers. This will help you settle for a ULIP policy that best suits your need. You can also make use of an online ULIP calculator to get an estimate of your investment returns beforehand. This will give you a fair idea of the amount of cover and corpus you would require. With leading insurance providers, you can invest in ULIP online from the comfort of your home. Make sure that you research the insurer carefully before settling for it. This will help you avoid any inconvenience in the later stage.