ULIPs are financial products that combine insurance coverage with investment benefits. So, a part of the premium amount paid is allocated towards insurance, & the other one is towards investments in debt, equity, or hybrid funds. Also, it offers an option to switch between the funds according to the market conditions and financial objectives.
Once you have understood what is ULIP, let us understand how it works:
.Ms Priya, 35 years old, purchases a ULIP, the details of which are:
Annual premium = INR 1,00,000
Sum Assured = INR 30,00,000
Multiple of Sum Assured = 30X
Premium Payment Tenure = 6 years
Policy Tenure = 20 years
Investment to be managed by = Self
Premium Payment Mode = Annual
She will receive the fund value at the time of maturity, depending on the market situation. The projected value of the fund would be INR 16,61,609 @ 8% or INR 8,20,133 @ 4%. The sum assured of INR 30 lakhs will be received in case of the death of the policyholder during policy tenure. These figures are just for illustration purposes and not guaranteed returns.
There exist two cases, as mentioned under:
Case 1: In case Ms Priya dies at the age of 45 years:
In this case, her family members will receive the death benefit, i.e., the higher of the sum assured or the fund value at the time of her demise, according to the policy’s terms and conditions.
Case 2: In case Ms Priya survives the 20-year policy tenure:
In this case, Priya will receive the fund value that would have been accumulated depending on the fund’s performance, which will further help you achieve financial objectives.
Factors to be considered while choosing the best ULIP Plan for Women
Provided are the factors to be considered while choosing the Best ULIP Plan in India for women:
- Financial Objectives
Define the financial objectives & then select a ULIP that best aligns with your investment horizon.
- Risk Tolerance Level
Assess the market risks & compare them with your comfort level to select a plan that best suits your risk tolerance level. The conservative investors are advised to invest in debt funds, & risk lovers may opt for equity-based funds.
- Premium Affordability
The premium amount chosen should best fit your pocket, ensuring regular & consistent payments throughout the policy tenure.
- Policy Charges
Assess the associated charges, like fund management fees, allocation charges, administration charges, etc.
- Investment Horizon
ULIPs are meant for a longer tenure, which means you should remain invested for a longer period to get a benefit from the power of compounding, dealing with market vulnerabilities.
- Monitor Regularly
Review the investments regularly to ensure that the funds align well with your financial objectives, & then switch between the funds accordingly to optimise the returns.
- Lock-in period
ULIPs come with a lock-in period of 5 years, during which withdrawals are not allowed.
Benefits of ULIPs for Women
Provided are the benefits of ULIPs for women:
Insurance protection
ULIPs include the dual benefit of life insurance for protection & investment for wealth. Hence, they offer financial protection to the family members of women in case of their untimely demise, mainly when they are the sole breadwinners in the family. In case of an unfortunate event of a woman’s death, the death benefit is received by the family members to deal with the financial losses.
- Suitable for different investment strategies
There are many fund types in which amounts can be invested under ULIPs. In case an investor has a high-risk tolerance level, opt for equity funds. On the contrary, if an investor has a low risk-tolerance level, opt for debt funds providing stable returns.
- Planning for financial goals
The choice of ULIPs can be made depending on the investor’s financial objectives. This means if you are looking for your child’s financial safety, you can buy child ULIPs. Additionally, if you are looking for retirement planning, opt for endowment ULIPs.
- Greater control over investment allocation
This plan allows you to invest according to your financial requirements, i.e., the premium amount to be paid, allocation of premium to the respective funds, policy tenure, additional riders, etc. This lets you invest according to your choice & preferences.
- Flexibility
It provides flexibility in terms of liquidity, which means one can make a partial withdrawal of funds once the lock-in period is over. It also allows switching between the funds without any need to incur any tax liability. This plan also offers a top-up facility if more investment has to be made. This plan also allows for redirecting the premium if a change in allocation of funds is required. But this facility is to be availed before the next due date of the premium, attracting miscellaneous charges.
- Tax benefits
This plan offers a tax deduction of up to INR 1.5 lakhs on the premium amount paid u/s 80C of the Income Tax Act, 1961. The premium amount should be up to 10% of the sum assured (in case of plan issued on or after 1st April, 2012) or up to 20% of the sum assured (in case of plan issued on or before 31st March, 2012). The death benefits are exempt from tax u/s 10(10D) of the Income Tax Act, 1961.
Conclusion
In older times, women did not make any investments or buy insurance for themselves due to their being housewives or not being allowed to work. But nowadays, as they are entering the workforce, restrictions have also loosened. ULIPs help them to gain financial independence & security, along with taxation benefits, market-linked returns, & flexibility in allocating funds. Seeking professional advice helps in making informed decisions, thus helping to achieve women’s financial objectives.