The Good and Bad of Investing in New-Age ULIPs

The ULIP investment has a lock-in period of five years, and charges apply for premature surrender. While ULIP is a popular investment product for its consistent performance, many consumers retract due to the hefty charges levied by the product.With the introduction of new-age ULIPs, the insurance providers have lifted off the following charges:

• Policy administration charges: The new-age ULIPs have removed the fees that are deducted every month for policy administration.
• Premium allocation charges: The percentage of the premium for both initial and renewal fees were deducted from the premium amount. These charges, too, have been lifted off in the new-age ULIPs.
• Fund management charges (FMC): The charges for managing investment funds have been kept at 1.35%, which is around the similar charges for ELSS.
• Mortality charges: The premium is levied mortality charges as part of the life insurance cover. The new-age ULIPs have reduced the mortality charges, and some insurers even refund the morality charges on the plan's maturity.

With the reduction in these charges, the new-age ULIPs have transformed their disadvantages into their advantages, making it an affordable investment.Besides the higher returns through equity investments, there are additional benefits of ULIP:

At the end of the policy term, the fund value is the maturity benefit, which can be obtained in a lump sum, or you can choose instalment pay-outs for up to five years.

ULIP is partly a life insurance policy, so after your death, the nominee receives the sum assured of the life insurance. Besides, some insurers offer the fund value along with the sum assured, while others provide the fund value if it exceeds the sum assured amount.

ULIP investment offers debt, equity, or a mix of both funds. You have the option to switch from loss-making funds. You are allowed a fixed number of switches in a year, after which switching charges will be applicable.

This is one of the main factors for ULIP's popularity among consumers. The investment amount is exempted from tax as well as the returns are excluded from the Long Term Capital Gains (LTCG) tax.

Besides being a good option for long-term financial goals, the ULIP investment also aids in meeting short-term goals with partial withdrawal facility after the lock-in period. The limit for the number of withdrawals varies across insurance providers.

At the time of death before the policy term, the insurance premium is waived off by the insurer. The sum assured is paid to the nominee at the end of the policy term. In case of illness or accidents leading to total or partial disability of the insured person, the premium will be waived off. Still, life cover and investment will not be terminated.The ULIP investment is suitable if you are looking for long-term investment, low policy charges, flexibility to switch between funds, and higher returns that are exempt from tax. However, higher returns are subject to market fluctuations.But if you are looking for a short-term investment, the minimum five-year lock-in period will offset your goal. Besides the lock-in period, it's advisable to patiently invest for 10 to 15 years to garner better returns.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.