Investment Plans in India :
- Life Insurance Investment Plans.
- Unit Link Investment/Insurance Plans(ULIP).
- Endowment Plans
1). Life Insurance Investment Plans: Life Insurance Investments are done keeping a future objective in mind which can be long term or short term,like buying a house,marriage,education or just building up a corpous for future.
2). Unit Link Investment/Insurance Plans(ULIP): ULIP or Unit Linked Insurance Plan is a mix of insurance along with investment. From a ULIP, the goal is to provide wealth creation along with life cover where the insurance company puts a portion of your investment towards life insurance and rest into a fund that is based on equity or debt or both and matches with your long-term goals. ULIPS allow you to switch your portfolio between debt and equity based on your risk appetite as well as your knowledge of the market’s performance.
Lock-in-period of ULIP:
One of the changes brought about by the Insurance Regulatory and Development Authority of India (IRDAI) in the year 2010 as regards ULIPs, was to increase the lock in a period from 3 years to 5 years. However, insurance being a long-term product, as an investor you may not really reap the benefit of the policy unless you hold it for the entire term of the policy which can range from 10 to 15 years.
Benefits of ULIP:
Life cover: First and foremost, with ULIPs you get a life cover coupled with investment. It offers security that a taxpayer’s family can fall back on in case of emergencies like the untimely death of the taxpayer, etc.
Income tax benefits: Not many are aware that the premium paid towards a ULIP is eligible for a tax deduction under Section 80C. Additionally, the returns out of the policy on maturity are exempt from income tax under Section 10(10D) of the Income-tax Act. This is a dual benefit that you can claim with this policy
Finance Long Term Goals: If you have long-term goals like buying a house, a new car, marriage, etc., then ULIP is a good investment option because the money gets compounded. As a result, the net returns are generally more. This stands true even if you want to exit after the 5 year lock-in period in comparison to not having invested the amount at all and retaining it in a savings account or in the form of an FD. But, under ULIP, the mantra is to always keep the policy going for a longer time horizon to reap the best out of it
The flexibility of a portfolio switch: As already mentioned, ULIPS are usually designed in a way that they allow you to switch your portfolio between debt and equity based on your risk appetite as well as your knowledge of how the market is performing. Insurance companies, on the other hand, allow a very few numbers of switches free of cost.
ULIPs Vs Mutual Funds
|Nature||Investment cum insurance product||Pure Investment product|
|Withdrawal||Only after lock-in-period of 5 years||Can be withdrawn anytime|
|Switching||Alternating between funds is permitted and not subject to taxation.||Switching is permitted between schemes of the same fund house. However, it’s treated as a redemption and the resulting capital gains are taxable.|
|Charges||Mortality charges, premium allocation charge, fund management charge and administration charges||No entry load, the annual fund management charges apply and an exit load, if applicable.|
3). ENDOWMENT PLAN : An endowment policy is essentially a life insurance policy which, apart from covering the life of the insured, helps the policyholder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the policy maturity in case he/she survives the policy term. This maturity amount can be used to meet various financial needs such as funding one’s retirement, children’s education and/or marriage or buying a house.
A life insurance endowment policy pays the full sum assured to the beneficiaries if the insured dies during the policy term or to the policy holder on maturity of the policy if he/she survives the term.
Thus, “any life insurance plan with a saving component and lump sum maturity benefit can be termed as an endowment plan. That can be a unit linked insurance plan (ULIP) or a non-ULIP. However, in common parlance, only a non-ULIP saving-linked life insurance plan is referred to as an endowment plan.
The key benefits of any endowment plan include financial protection of loved ones, goal-based savings, tax benefits under section 80C and 10(10D) of the Income Tax Act and the options to obtain loan against the policy, in case of any financial emergency.
According to experts, people with a regular stream of income and need for a lump sum amount after a period of time may consider buying an endowment plan.
What to check when buying an endowment policy?
Like many other types of insurance plans, there are a plethora of endowment policies available in the market today. Choosing a suitable policy will depend on many factors, including your current life stage, individual need, income and risk appetite.
In the case of endowment plans, however, you also need to check the premium rates of various endowment plans as they are expensive compared to term plans. herefore, a mistake here will cost you more in the long term.
After comparing the premium rates, the next important thing to check is the insurance company’s track record with respect to bonus payments. “Most endowment plans give lesser returns than ULIPs, but the endowment plans are considered safer. However, returns being an important factor for deciding on saving options, customers should know about the bonus rate. Also, try translating it into a simple ROI to know the relative worth of the endowment plans.
Other important considerations are the claim settlement ratio, customer service track record and financial standing of the insurance company. Try to pick an endowment plan which is simple and easy to understand. Further, avoid policies with complex features and benefits, unless you are able to understand them very well, because there could be some catch in the fine print, caution experts.