Unit Linked Insurance Plans (ULIPs) can be considered a better option for some individuals looking to buy life insurance due to the combination of insurance protection and investment opportunities that they offer.
Here’s why ULIPs are considered a beneficial option for life insurance:
1. Dual Benefit: Life Cover + Investment
- Life Insurance Protection: ULIPs provide the same life coverage as traditional life insurance plans, ensuring your family’s financial security in case of your unfortunate demise.
- Investment Component: In addition to insurance, ULIPs allow you to invest in a variety of market-linked instruments (such as equity, debt, or balanced funds). This means that the premiums paid are partly invested in funds that have the potential to grow over time, offering better returns than traditional life insurance policies.
2. Higher Returns with Market-Linked Investment
- Growth Potential: ULIPs offer market-linked returns, which have the potential to provide higher returns over the long term compared to traditional life insurance policies (which typically offer fixed returns). By investing in equity, ULIPs can outperform traditional savings instruments, especially for those with a long-term investment horizon.
3. Flexibility in Investment Choices
- Fund Options: ULIPs provide various fund options (such as equity, debt, and balanced funds) allowing policyholders to select the type of funds that align with their risk appetite and financial goals. Investors can switch between funds based on market conditions or their changing risk preferences.
- Top-up Premiums: ULIPs also offer the flexibility to invest additional amounts through top-up premiums to boost the investment value over time.
4. Tax Benefits
- Under Section 80C: Premiums paid towards ULIPs are eligible for tax deductions under Section 80C of the Income Tax Act (up to ₹1.5 lakh per year).
- Tax-Free Maturity Benefit: The maturity benefits received from ULIPs are tax-free under Section 10(10D), provided certain conditions are met (such as the sum assured being more than 10 times the annual premium).
- Tax Benefits on Partial Withdrawals: The returns on investments within ULIPs are also tax-exempt after the policy has been in force for 5 years.
5. Flexibility in Premium Payment and Duration
- Premium Payment Options: ULIPs offer various premium payment options, such as regular premiums, limited premiums, and single premiums. This flexibility makes ULIPs more attractive to those who want customized premium payment plans.
- Policy Term Flexibility: ULIPs come with flexible policy terms (e.g., 10–30 years), allowing policyholders to choose a term that suits their financial goals and life stage.
6. Partial Withdrawals
- Access to Funds: ULIPs allow partial withdrawals after a specified period (usually 5 years), which can be beneficial in case of emergencies or for other financial needs. This feature provides liquidity and allows you to access a portion of your investment value if required.
7. Transparency
- Clear Investment Information: ULIPs provide transparency about the investment portfolio and performance. Policyholders can track the fund value, investment performance, and the policy’s growth regularly through online portals or statements. This level of visibility is not typically available with traditional life insurance plans.
8. Flexibility in Fund Switching
- Switching Between Funds: ULIPs allow you to switch between funds (e.g., from equity to debt or vice versa) based on market conditions or your evolving risk preferences. This flexibility helps in optimizing returns according to changing market scenarios.
9. Long-Term Wealth Creation
- Compounding Benefits: ULIPs are designed for long-term wealth creation. By investing for the long term, policyholders can benefit from compounding and market growth, especially if they start early.
- Wealth Booster Feature: Some ULIPs offer additional units (wealth boosters) after a certain period, further enhancing the investment value.
Why Comparing two ULIPs is crucial?
Comparing two ULIPs is crucial for selecting the best plan based on your financial goals. It helps evaluate fund options, charges (e.g., premium allocation, fund management), and flexibility (such as switching, top-ups). Comparing the performance history and death benefits ensures better returns and suitable life cover. Additionally, it helps assess tax benefits, premium payment options, and policy term flexibility. By comparing additional features like riders or wealth boosters, you can choose a plan that matches your risk appetite and financial objectives, ultimately ensuring a better investment strategy and insurance protection.
Here is a comparison between “ICICI Pru Signature Assure ULIP” & “LIC’s Index Plus “.
| Plan Type | ULIP (Unit Linked Insurance Plan) | ULIP (Unit Linked Insurance Plan) |
| Investment Options | Equity, Balanced, Debt, Liquid Funds | Equity Fund, Bond Fund |
| Fund Switching | Unlimited (with charge after a number of free switches) | Limited switching between Equity and Bond Funds |
| Policy Term | 10 to 30 years | 10 to 20 years |
| Premium Payment | Regular, Limited, Single Premium | Regular, Limited, Single Premium |
| Life Cover | Sum assured or fund value, whichever is higher | Sum assured or fund value, whichever is higher |
| Partial Withdrawals | Allowed after 5 years | Allowed after 5 years |
| Tax Benefits | Under Section 80C and Section 10(10D) | Under Section 80C and Section 10(10D) |
| Charges | Premium allocation, Fund management, Mortality charges, etc. | Premium allocation, Fund management, Mortality charges, etc. |
| Fund Risk | Varies (depends on chosen fund) | Equity linked (risk varies based on market) |
| Flexibility | More fund options, Wealth Booster available | Limited fund options, Loyalty additions after long-term |
Conclusion:
- ICICI Pru Signature Assure ULIP offers more flexibility with a wide variety of fund options, and is suitable for those who want to diversify their investments across equity, debt, and liquid funds.
- LIC’s Index Plus is more focused on market index-driven returns, providing a simpler structure with fewer fund options and lower administrative charges for long-term policyholders. It may be a better choice for those looking for a more conservative, index-based approach.
The charges associated with Premium Allocation, Fund Management, Mortality, and other fees are an important aspect of both ICICI Pru Signature Assure ULIP and LIC’s Index Plus. Here’s a more detailed breakdown of these charges in both plans:
| Charge Type | ICICI Pru Signature Assure ULIP | LIC’s Index Plus |
| Premium Allocation Charge | 5%–8% in the 1st year, 2%–3% in subsequent years | 5% in the 1st year, 2.5% in subsequent years |
| Fund Management Charge | 1.35% (Equity, Balanced, Debt Funds) | 1.25% (Equity, Bond Funds) |
| Mortality Charges | Based on sum at risk and age (varies by policyholder) | Based on sum at risk and age (varies by policyholder) |
| Policy Administration Charge | ₹50–₹600 per month (varies with sum assured) | ₹60–₹300 per month (varies with sum assured) |
| Surrender Charges | Reduced after 5 years | Reduced after 3 years |
| Switching Charges | ₹100 per switch (after 12 free switches) | Unlimited free switches |
| Top-up Charges | No charges | No charges |
Key Differences:
- Premium Allocation Charges: ICICI Pru Signature Assure ULIP has higher charges in the first year (5%–8%) compared to LIC’s Index Plus (5%).
- Fund Management Charges: ICICI Pru Signature Assure ULIP charges slightly higher (1.35%) compared to LIC’s Index Plus (1.25%).
- Switching Charges: LIC’s Index Plus offers unlimited free switches, while ICICI Pru Signature Assure ULIP allows only 12 free switches per year, charging ₹100 per additional switch.
- Surrender Charges: LIC’s Index Plus reduces surrender charges after 3 years, while ICICI Pru Signature Assure ULIP does so after 5 years.