Achi news desk-
How are the new investment ULIPs, how different are they from the old ULIPs? Let us understand.
Every investment plan has advantages and disadvantages. The same applies to ULIP as well. This is a life insurance plan. Through this you can earn along with life insurance coverage. You can also take advantage of the tax savings. The lock-in period of the ULIP investment is five years. Till a few years back huge charges were levied in ULIPs but the cost of new ULIPs has come down considerably and they are called smart ULIPs.
The biggest advantage of Smart ULIP is the facility to pay the premium according to the changing financial circumstances. You can choose the option of quarterly, half yearly, yearly or monthly investment just like a mutual fund SIP. If you have excess funds then you can also recharge. In this investment, according to risk tolerance, you can choose to invest up to 100 percent in equity or debt. According to your strategy you can switch to equity, debt or hybrid. Some insurance companies do not charge a fee for switching plans. After five years, you can withdraw some or all of your investment.
The special aspect is that in Smart ULIP there is no premium provision and policy management charge, which were previously deducted from the policyholder’s premium. In this way the cost of investing in new ULIPs has been reduced to a great extent. The main difference between traditional ULIP and Smart ULIP is the flexibility in their investment strategies and premium payment.
The biggest disadvantage of the old ULIP was the high investment cost. At one point, the insurance agent was given up to 40 percent commission for ULIP in the first year, which was deducted from the insured’s premium. However, now the insurance regulator IRDAI has fixed the limit on ULIP fee. Now each insurance company decides the agent’s fee according to the size and expenses of its business. Still, this investment is quite expensive as the plan activation cost and agent commission cost are included in ULIP premium.
In Smart ULIP, companies have done away with agent fees and premium allocation. Most insurance companies sell this plan online. Because of this, some companies have reduced the policy management charge and some have canceled it completely.
The cost of life insurance cover at ULIP premiums is proving to be quite expensive. In the new ULIP, the insurance companies give the option of returning the death fee. For example, HDFC Click2 Wealth offers the option of Return of Mortality Charge (ROMC) at maturity, while the Tata ISIP plan offers the option of Return of Mortality Charge (ROMC) in the 11th year. In ULIP, the insurance company takes a fund management fee which can be between 0.8 to 1.35 percent per annum. Thus, this investment has become largely economical compared to the previous one.
Now tell us how to get tax benefits in ULIP? Under Section 80C of the Income Tax Act, tax exemption is available on investment up to Rs 1.5 lakh per annum in ULIP. However, this benefit will only be available when the investment amount is up to 10 percent of the insurance coverage amount. If the premium is higher than that, there will be no tax benefit. If your total annual investment in ULIP is up to Rs 2.5 lakh, then the entire amount will be tax-free on maturity after five years. If the annual investment is more than Rs 2.5 lakh then the returns on the excess amount will be taxable.
SEBI Registered Investment Advisor Jitendra Solanki says ULIP provides the benefits of life insurance cover, returns and tax benefits. Considering these features, ULIP seems to be a better investment option, but the investor does not get the facility of free life cover. The company charges for it every year. That way all your money is not invested. This is a main source of income for insurance companies. In ULIP, your investment and insurance gets mixed which is not considered good in any situation. For insurance, take out term insurance and choose the investment option according to your investment goals.
Know one thing very well that no insurance company will provide you any facility for free. This mantra also applies to Smart ULIP… So take investment decisions only after careful consideration.
(Disclaimer: Recommendations of experts or brokers are their own and not of the site or its management. Money9.com advises readers to check with qualified experts before making any investment decisions).
Published: April 15, 2024, 4:30 PM IST
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