Frequently Asked Questions (FAQ's)
What does ULIP stand for?
ULIP stands for Unit Linked Insurance Plan.
What is Unique about ULIP Plans?
Unit Linked Insurance Plans (ULIP’s) are plans offered by life insurance providers, which have Triple benefits of providing life insurance cover coupled with the benefit of investment apart from tax benefits under section 80C of the IT act.
What is the Sum Assured in a unit-linked insurance plan?
The amount an insurer agrees to pay to the insured’s nominee in the unfortunate case of demise of the insured is known as the assured sum. It is normally the sum total of the sum assured and accrued investment benefit over the duration of the policy.
What is the fund value?
The value of the insured’s existing current investment after deducting all the applicable fees/ charges is known as fund value. The insurance premium for ULIPs is attracts charges like premium allocation charge, fund management charge, mortality charge and administration charge which are deducted from the corpus. These charges are deducted by cancelling units at the prevailing NAV.
What is the difference between a ULIP & SIP?
ULIP - It is a unique insurance plan, as it comes with triple benefits that include Investment Returns, Life Insurance Coverage and Tax Savings. Hence the investor enjoys market-linked returns on their investment while enjoying life insurance coverage at the same time.
SIP - SIP stands for a systematic investment plan that enables an investor to invest a stipulated amount of money in his/her preferred mutual funds on a pre decided periodicity while building a corpus for financial stability. The investment periodicity can vary from monthly to quarterly or annual basis.
Is a ULIP taxable at maturity? What about Interest Earned?
The money received as the maturity benefit of a unit-linked insurance plan is tax-exempted as per section 10 D of the Income Tax Act, 1961. Similarly the interest earned is also Tax Free.
What if Free Look Period?
Every insurance plan offers a 15 days free-look period to the policyholder after the insured receives policy documents to review the terms and conditions of the chosen plan and if they are not satisfied with the policy, then the policy can be returned and this will incur deductions like stamp duty that has been paid on the policy, premium for the number of days coverage has been given.
Compare ULIPs and Mutual funds?
Though both ULIPs and Mutual Funds are exposed to stock market risks, these products differ on various aspects as highlighted below:
||Offer both Investment and Insurance purpose
||Primarily only for Investment purpose. No Insurance benefit.
||Normally this is a One Time Payment
||Investments in Mutual Funds can be Monthly, Quarterly and Annually through SIP’s.
||Generally come with a defined Tenure which is finalised upfront.
||No Fixed Tenure
|Lock In period
||Lock in period is between 3-5 years. If the policy is withdrawn in first year, surrender charge are applicable which gets reduced by every year and becomes nil after 5 years
||There is no entry or exit load after 1 year and the investor can enter and exit anytime depending on market conditions.
||Very Liquid post lock in period. A part withdrawal can be made at any time in case of any emergency.
||Reasonably Liquid after 1 year. No Part withdrawal possible.