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Why ULIP and How to Choose the Right ULIP plan?

Unit Linked Insurance Plan, or ULIP as it is better known, is a tax saving financial investment product, that offers insurance coverage to the insured along with the benefit of market linked returns, under a single plan.

In ULIPs, a part of the premium is dedicated towards Life Cover and the remaining is pooled with the premiums received from other policyholders, and then invested in financial instruments - equity, debt or a combination of both, as per the customer’s choice.

Why invest in ULIP?

The reason to not invest in ULIP is only one: IGNORANCE. While, if you are seeking reasons to invest, here are few of the many:

  • Wealth Creation opportunity
    • Leverage equity market returns to plan better for your long-term goals such as retirement planning, children’s education or any another important event close to your heart.
    • Professionally managed Investments – Your investments are managed by highly experienced fund managers.
    • Transparent Investments – You will be regularly updated about the funds invested in as well as the allocated number of units and other details regarding portfolios.
    • Flexibility of Fund switch at NIL cost* or incremental tax liability – Switch your portfolio between debt and equity-based funds basis your risk appetite and knowledge of the market’s performance.

*subject to a maximum of 52 switches a year in case you choose self-manage option. Additional switches will be chargeable.

  • Life Insurance cover – These plans act as a financial security for your family in the event of your unfortunate, untimely demise.
  • Tax benefits - The premium paid towards a ULIP is eligible for a tax deduction under Section 80C of the Income-tax Act (subject to prevailing tax laws).


How to choose a ULIP plan?

  •  Evaluate your risk appetite – ULIPs offer an option to invest in equity, debt or in a combination of both. Equity funds have the potential to yield higher returns, but at the same time carry higher risks as well. On the other hand, debt funds present lower-risk investment options with relatively lower returns. Therefore, basis your future goals and risk appetite you can make your investments, along with the flexibility to switch between these funds, according to your requirements.
  • Estimate the required Life Cover – ULIP, being an investment cum insurance plan, can help achieve your future financial goals as well as act as a financial security for your dependents, in the event of your unfortunate, untimely demise. The extent of life cover that you require will depend upon your family’s future financial needs.
  • Understand the charges leviedULIP plans levy different charges in the form of fees – policy administration charges, fund management charges, premium allocation charges, mortality charges, surrender or discontinuation charges, fund switching charges.
  • Choose the right Insurance Partner – Key factors that you should consider while choosing your insurance provider:
    • Claim Settlement Ratio - The claim settlement ratio of an insurer is the number of claims settled against the number of claims filed: the higher the ratio, the more preferred the insurer.
    • Solvency Ratio - A life insurance provider with a high solvency ratio is more likely to be financially stable and therefore, more equipped to pay out your insurance claims and survive for a long time. Higher the ratio, better is its ability to settle claims.
    • Customer Centricity - A company’s commitment to service excellence should hold top priority. The customer should, at all times, be at the core of the company’s operations, and should be dealt with, with empathy and understanding. Look for external rewards and recognition for customer centricity.
    • Digital Strength - Access to online tools, literally at the click of a button, whether at the time of purchasing a policy, paying a premium, renewing the policy, resolving a complaint or settling of claims ensures an easy, convenient and hassle-free customer experience.


Key points to note - 

  • Investments made under a ULIP are subject to the risks associated with the capital market. 
  • Investment risk in the investment portfolio is borne by the policyholder.
  • There is a lock-in period of 5 years. You have the option to surrender the Policy anytime and you will be entitled to the Discontinued Policy Fund Value at the end of fifth Policy year or the date of surrender whichever is later, and the Policy will stand terminated.


To seek a detailed understanding of ULIPs, please click here A dedicated financial advisor will get in touch with you soon after.


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MKTG/ Blog Content for RNLIC Website/V1/May 2021

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