ULIP as an Insurance Plan

Life Insurance Cover is a plan in which the insured person gives periodic premiums to the Insurer for a particular period, and in case of any eventuality before the lapse of the policy, the insurer pays the sum assured and the accrued bonus to the nominee of the insured person. Now based on term of premium payment and the term of life coverage, the Life Insurance covers are broadly classified into four categories:

a)   Whole Life Policy: In the Whole Life Policies, the insured person is provided a life cover till he attains an age of 65 irrespective of the age at which he subscribes to the policy. In this case, the person just has to pay the insurance premiums for a particular period.

b)    Money-Back Policy: The insured person is provided a life cover for a particular term that is predetermined and the premiums are decided on the basis of the term of policy. Additionally, the insured person is given back some amount at regular intervals throughout the term of the policy.

c)    Endowment Policy: The Endowment Policies are given for a particular term for which the life cover is provided and the insured person has to pay periodic premiums to the insurer. At successful completion of the policy term, the insured person is given back all the survival benefits and accrued benefits.

d)      Unit Linked Plans: Unit Linked Insurance Plans are similar to Endowment schemes, but here the returns are not guaranteed, as the part of the annual premiums is invested in stock markets, debts and other market linked securities. The life cover is provided to the insured person for particular term and amount. In traditional insurance products, the sum assured is the corner stone; in ULIPs premium payments is the key component.

Life Insurance covers besides giving a lease of life (literally to the dependants of policy holder), provide several additional benefits:

• Gainful Investment: With the advent of ULIPs, insurance products graduated from being a protection device to an investment vehicle. Investment based inusrance plans give the chance to benefit from the gains of the stock market and the debt market along with providing the desired safety net.

• Inculcates discipline in savings: Even if one does not manage to save money and invest regularly in financial instruments, with insurance, the policyholder has no choice. If he does not pay his premiums on time, his insurance cover will lapse.

• Beats the Market fluctuations: Long term investments are the sure fire way to beat the stock market fluctuations. No better way than insurance which carries perhaps the longest investment term in the portfolio mix. 

• Tax benefits: Insurance has always been the first choice as a tax saving device. The premiums that an investor pays and all the benefits payable to him under the plan are eligible for tax benefits under section 80 C and 10(10D) of the Income Tax Act of 1961.