How is Your ULIP Premium Utilized? Read to know more

It is no brainer that everybody dreams big when growing up. While the lucky ones achieve their dreams in one shot, the rest amongst the lot strives hard to turn those dreams into reality. No matter what the case is, an investment in a Unit Linked Insurance Plan (ULIP) is worthy as it lets you attain all your lifelong and unfulfilled aspirations. Investment in a ULIP means ensuring the payment of premiums on a timely basis in order to meet those goals. Therefore, in order to find out what is ULIP plan and how these ULIP premiums are utilized towards the policy, keep reading:

Working of a ULIP Policy:

Since premiums are an important part for the survival of the ULIP Policy, it is mandated for every policyholder to make the timely payments of the premiums. A policyholder can make the payment of these premiums based on his capacity. He can either pay it annually, monthly or quarterly. In case the policyholder is unable to pay the premium, the insurance company offers him a grace period of 60 days to make the payment. Failure to make the payment even after the grace period leads to the lapse of the ULIP Policy.

On the other hand, the insurance companies offer ULIP tax benefits on the regular payment of premiums. According to Section 80C of the Income Tax Act, 1961, the premium which is paid towards the policy is allowed certain tax benefits for the benefits of the policyholders. The premium is deducted up to Rs. 1,50,000 on the taxable incomes. These deductions help the investors to save up more money on the ULIP insurance.

Division of the ULIP Premium:

The premiums paid towards a ULIP Policy plays a major role in the working of the policy. In order to run the policy successfully, the premiums are divided into different categories. Take a look at how and where the premiums are divided further:

  1. Coverage

Since ULIPs are a combination of investment as well as insurance, it provides life coverage for the betterment of the policyholder and his family. On the death of the policyholder, the nominees are given the coverage benefits of the policy. The nominees mentioned by the policyholder are liable to receive the sum assured as well the future payment of the premiums is waived. In addition to this, the nominees also receive the returns from the policy.

  1. Equity markets

The other major chunk of the premium goes into the equity market investment. On the investment of a ULIP Policy, the policyholder is given a choice to select from the multiple fund options based on their risk appetite. The available fund options under ULIP Policies are equity funds, debts funds, and balanced funds. The selection of these funds not only decides your risks but also the returns on the investment.

Take a look at the table given below which gives a clear picture of the risks and returns involved in a particular fund of the ULIP Policy:

TYPE OF FUNDS LEVEL OF RISK RETURN ON INVESTMENT
Equity Funds High High
Debts Funds Low Low
Balanced Funds High Moderate

 

Now that you know how your ULIP premiums are utilized, what are you waiting for? Since a ULIP Policy is different from other insurance plans, they are prone to risk factors. Invest in a ULIP based on your needs and risk appetite in order to gain higher returns. In the end, the money that you invest in this policy should work in favor of you and your entire family without incurring any heavy losses.

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