Understanding how your ULIP premium is utilised

It is always a great idea to ensure that you and your family are financially protected no matter what the future holds.

The last 18 months have highlighted the importance of investing wisely. This testing period has proved that while having a regular income is important, wealth is even more so. A small virus, discovered just over a year ago, went on to infect 193 million people and killed over four million of them^[1]. The world economy slowed down, millions lost their jobs, faced salary cuts or some kind of constraint on their cash flows. This was the time when many families were left in a financial lurch, in some cases due to loss of breadwinners, and in others due to lack of financial backup to deal with the unforeseen crisis.

COVID-19 may be a once-in-a-century event, but it is just a reminder of how life can be derailed by something unexpected. So, it is always a great idea to ensure that you and your family are financially protected no matter what the future holds. A ULIP, or Unit Linked Insurance Plan, can help you do that through its dual benefits of providing life insurance along with long-term market-linked wealth creation.

What are ULIPs?

A ULIP is a kind of a modern-age life insurance policy that combines insurance benefits with investment. It serves as a back-up plan to ensure that your family is financially protected in your absence, while simultaneously earning market–linked returns to help them build a bright future while you are right by their side. Moreover, ULIPs also provide tax-benefits at the time of investment as well as at the time of maturity, subject to the provisions contained in the tax laws.

The gap between income and inflation is ever-increasing and the only way you can close this gap is by making wise investments. ULIPs are one amongst the preferred investment options available in the market. You can choose a goal based ULIP in case there are some financial goals that you need to achieve, like your children’s marriage or higher education, or your retirement. The ULIP lock-in period is for 5 years and your money may continue to grow by way of market–linked returns over the long-term. In addition, some ULIPs give you the flexibility to switch your funds even during the policy period as per the terms and conditions specified therein. . You have the choice to invest in equity funds if you are less risk-averse, or you can invest in debt funds or a combination of both, depending upon your risk appetite.

How Your Premium is Utilized

As discussed above, ULIP provides both the opportunity of market-linked wealth creation and that of life insurance cover. The premium is utilized as follows:

• Mortality Charges in ULIP : The amount of charges depends on your age, sum assured and the policy term. The insurance cover is usually ten times the total annual amount of the premium paid by you subject to the terms and conditions of the given plan. In case of the premature death of a policyholder, his/her nominees receive the death benefit under the policy. Some insurers offer ULIP policies that return back the mortality charges levied at maturity. This feature is known as the return of mortality charge.

• Unlike traditional life insurance endowment policies, ULIPs may generate returns over time by investing a part of your premium in market-linked funds like equities, debt, or both. ULIPs offer a number of investment funds with different proportions of exposure to equity and debt. Some ULIP funds invest a higher portion of their corpus in equity instruments, while some invest higher proportion in debt. You also have the option to switch between these investment funds during the policy term to optimize your returns over the policy term. In fact, you can also use the premium redirection facility to allot future premiums between different available funds.
• Other charges: Some other charges that are deducted from your premium include policy administration charges, premium allocation, fund management charges and other miscellaneous charges. Fund management charges are charged for managing your funds over the course of the policy’s duration. Some ULIP plans may also impose fund switching charges, partial withdrawal charges, and surrender charges. Some reputed insurance companies, like Bajaj Allianz Life Insurance, offer free fund switches in their ULIP plans.

To make the most of your investment, you could consider Bajaj Allianz Life Goal Assure, A Unit-linked Non-Participating Life Insurance Plan which returns the mortality charges^# or life cover charges deducted during the policy term at the time of maturity. Additionally, you get a choice of 4 investment portfolio strategies to help you meet your life goals based on your risk appetite and investment approach/philosophy. It is a tax saver^~ plan that also allows you to receive your maturity benefits in instalments^$.

Investing in ULIPs may help you achieve your life goals and enjoy a fulfilling life. By choosing ULIPs, you not only get the dual benefits of life protection and market-linked wealth creation, but also the added tax benefits. Because of the multi-dimensional benefits that they offer, you must consider adding ULIPs to your investment portfolio to strike a balance between your insurance and investment needs.

References:

[1] https://www.worldometers.info/coronavirus/
# Return of life cover charges = return of mortality charges (ROMC) which is payable on maturity, provided
all due premiums have been paid.
~ Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for
eligibility.
$ Settlement Option is subject to policy terms and conditions.
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