5 min read
Updated on Jan 17, 2023
One of the best financial products in India to invest in, a Unit Linked Insurance Plan or ULIP has several benefits to offer to its investor. The primary being the fact that a ULIP serves a dual purpose – of providing an insurance benefit to the policyholder as well as offering the opportunity to enjoy the benefits derived from investment in capital stock.
Owing to its dual benefit, most investors like to put their money in ULIPs. It is no wonder then that a ULIP plan has undergone several changes over the years to better suit the needs and preferences of its prospective investors. For instance, the initial ULIPs that were first introduced in India came with a three-year ULIP lock in period, which later changed to a ULIP lock in period of 5 years on public demand.
We learned in the section above the exact ULIP meaning and what is a ULIP plan. Now let’s quickly understand the meaning of the term lock-in period when it is used in the context of ULIPs in India.
A ULIP lock in period refers to the total time duration during which an investor is discouraged, sometimes even restricted, to withdraw the money invested into the plan, either partially or fully. It is only after the completion of the lock-in period that the investor can reap the benefits of their investment through withdrawal.
In India, the ULIP lock in period is set to 5 years, before which a withdrawal may attract a surrender fee from the investor. However, with the growing popularity of ULIPs in the country, the general consensus is slowly moving towards the idea of investing in ULIPs for longer (than 5 years). This is because the longer the investment in a ULIP, the longer one can enjoy the benefits of their investment.
This is why a large number of investors in India are slowly considering staying invested in a ULIP policy for at least 20 years in order to continue reaping the benefits from the investment for longer.
So does this mean now that the 5-year for ULIP lock-in period is slowly going to be scrapped? Perhaps not or not so soon, at least. Nearly all the ULIP plans offered by insurance companies today provide a standard 5-year ULIP lock in period to the investor. However, it is generally wiser to invest in a ULIP for a longer term, say 20 years. Investors state here’s why:
Read More: Benefits and Advantages of Investing in ULIP
Most investors often tend to get confused between these two financial instruments – ULIPs and Mutual Funds. However, the two are indeed different and it’s a good idea to understand the key differences between both before choosing to invest in either one. The following table clearly illustrates how ULIPs differ from Mutual Funds:
|Term of policy||Generally long-term plans||Can be for a short, medium, or long term as per the financial needs and goals of the investor|
|Purpose of the plan||Wealth generation via investment and insurance coverage both||Only wealth generation through investment|
|Lock-in period for the policy||Usually 5 years||Most mutual funds have no lock-in period, with a few exceptions being children’s funds, ELSS funds, and retirement funds|
|Regulatory Body for the plan||ULIPs fall under the regulation of the IRDAI||Regulated by SEBI|
|Tax concessions under the plan||Premium payable for the ULIP is tax-deductible up to Rs 1,50,000 under Section 80C of the ITA, 1961. Maturity benefit is also free of tax payment under Section 10(10D) of the Act.||ELSS funds are eligible for tax rebates up to Rs. 1,50,000 under Section 80C of the ITA|
Read More: ULIP Vs Term Life Insurance
ULIPs are a great way to save and reap the benefits of those savings made over a long period of time. We learned in the blog about what is a ULIP plan, that it is both an investment and insurance product and, hence, its demand is generally higher among the investor community. It’s wiser to consider investing in a ULIP plan for at least a 20-year horizon to reap its benefits over a lifetime. To compute the exact benefit amount that can be derived from a ULIP investment, you may look up a ULIP calculator online. Besides, you can also browse through the best ULIP plans available in the market on PayBima.
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