Best ULIP plans to invest in 2023

Unit-Linked Insurance Plans, or ULIPs, serve the dual purpose of providing life insurance cover and investment. The idea of investing in ULIPs is to provide long-term investment and a cover to family in case of the unfortunate demise of the insured.

The Unit Trust of India launched the first ULIP of the country in 1971. Thereafter, LIC Mutual Fund launched a ULIP product in 1989. Both had a good success in providing life cover to the unitholders as well as a good return on their investments.

ULIPs are an improvement over endowment plans as they offer more transparency on how much the customer’s money is being used as an investment and as expense and where the money is invested. As traditionally ULIPS also offered various tax incentives, they saw a stellar growth in India over the past few decades.

So, when you make an investment in a ULIP a certain part goes towards insurance, a little in expenses, and the rest is invested according to the scheme’s plan in shares or bonds or a mix of the two.

Types of ULIPs

Equity Funds – These ULIPs invest the money in the share market, either directly in stocks or through index funds. They are usually high-risk, high-return plans.

Debt Funds – These schemes invest the fund in money market instruments such bonds, debentures, gilts etc. They are usually less risky than Equity Funds and the likely return is also lower.

Balanced or Hybrid Funds – They invest the funds party in money market instruments such as bonds and the rest in equity. They emerged over the years in a bid to offer both protection to investment and growth.

Liquid Funds – They invest money in quick maturing instruments such as T-Bills. They usually offer the lowest return but also offer low risks and the option to quickly redeem the units.

Terms associated with ULIPs

Lock-in Period – The initial period during which you are not allowed to redeem the units.

NAV or Net Asset Value – The value of a single unit of ULIP. It is based on the value of the current market value of the total investment divided by the total units in the plan. This is the value you will get if you happened to redeem your ULIP.

Sum Assured – The money a nominee gets in case of an untimely demise of the insured.

Premium – The money a policyholder to keep the policy.

Riders - Many ULIPs provide additional benefit apart from, death benefit, for which you have to pay certain extra premium. An example would be critical illness rider that pays a certain money to the policyholder in case of illness such as cancer.

Switching option – Sometimes the fund house gives the option to policyholder to switch between different investment options.

Surrender charge - The fund management company or insurance company may charge some fees in case of closure of policy before the lock-in.

Fund management charge - The fees charged by professionals and the company to manage the fund and its investment.

Top 10 ULIPS for 2023

1. HDFC Life Click 2 Wealth         
2. ICICI Prudential Signature
3. Aditya Birla Sun Life Fortune Elite Plan
4. SBI Life eWealth Insurance
5. Max Life Platinum Wealth Plan
6. LIC Endowment Plus
7. Bajaj Allianz Future Gain
8. HDFC Life ProGrowth Plus
9. Bajaj Allianz Fortune Gain
10. ICICI Wealth Builder

Factors to Consider When Evaluating ULIPs

Investment and Insurance Balance:  The sum insured usually should be part of your total investment profile that may include other pure insurance products.

Investment goals: The decision whether to invest on equity or debt or balanced fund should depend on how much risk you are willing to take with this investment.

Compere different schemes: Check the performance of different schemes over the past few years.

Lock-in period and policy tenure: ULIPs will have a five lock-in period of five years which you should keep in mind at the time of investment. Then you should also see if the maturity of the policy matches with your aim of the investment.

Claim settlement ratio: A higher claim settlement ratio shows that the insurance company disputes lesser number of insurance claim cases

Benefits and Risks of investing in ULIPs

Like any other investment ULIPs, too, have their own advantages and disadvantages.

Advantages of ULIPs

• Double benefit of insurance and investment
• Professional management of investment
• Tax advantages on premium paid: Premium paid of up to Rs 1.5 lakh per year can be claimed as deduction under Section 80C of the Income Tax Act.
• Tax advantage on maturity money is also available if  premium on a scheme is less than Rs 2.5 lakh in a year and is 20% lower than the sum assured.
• Tax advantage on sum-assured: The money received from ULIP in case of an untimely death of the insured is tax free under Section 10(10D)
• No tax is imposed in case of less than 20% partial withdrawal after five years.
• Most ULIPs allow movement of funds between debt and equity funds
• Diversifying Your Portfolio with ULIPs

ULIPs offer you the advantage of diversifying your portfolio by bringing in professionally managed funds and the option to move funds from equity to bonds to hybrid easily. If you have direct position in equity market, you can buy ULIPs that invest in bonds and vice versa. This helps spread the risk through various investments.

How to Invest in ULIPs Online?

Most fund management companies offer the option of buying ULIPs online. Here is a step-by-step guide:

1. Open the website of the fund management or insurance company
2. Click on the ULIP that you want
3. Check the sum assured
4. Choose riders, if any
5. Enter the tenure and amount to invest
6. Enter periodicity of investment
7. Make payment

Conclusion

ULIPs have always attracted investors in India due to tax advantage and dual benefit of insurance and investment. But the government has eroded some of these tax advantages over time. It is best to club ULIPs with your other investment insurance schemes. It is always a good idea to have ULIP in your portfolio as they also offer advantage of professional investment management.

FAQs

What are the best strategies for investing in ULIPs?

One should diversify their investments in ULIPs across debt, equity and hybrid funds.

Is ULIP income liable to income tax?

Income from ULIPs of premium less than Rs 2.5 lakh is exempted from tax.

Is ULIP investment deductible from income for tax purpose?

All ULIP investments are allowed deduction under Section 80C of the Income Tax Act. The maximum deduction allowed is Rs 1.5 lakh in a year.

Which is better -- ULIP or MF?

Both ULIPs and mutual funds have their own advantages and disadvantages. A ULIP can be better if the investor doesn’t want to take life insurance separately. However, mutual funds are better if the investor already has life insurance or plans to take a separate cover.