Premium Redirection in ULIPs (Unit-Linked Insurance Plans)

ULIPs offer a combination of life insurance protection and market-linked investment potential. But what if your risk tolerance or financial goals change over time? This is where premium redirection comes in. It empowers you to be an active manager of your ULIP plan, allowing you to strategically adjust how your future premiums are invested within the plan's fund options.

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Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

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Disclaimer :
Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

What is Premium Redirection in ULIPs?

Premium redirection in ULIPs is a feature that allows you to change how your future premiums are invested within the plan. It basically lets you adjust your investment strategy over time. Let's say you initially invested more in equity funds for higher returns, but now want to shift towards a safer investment option like debt funds. Premium redirection allows you to direct your future premiums to the debt fund instead.

When to Redirect Your Premium in ULIPs?

  • Change in risk appetite: As you get closer to your financial goals or approach retirement, you might want to move towards less risky options by redirecting premiums to debt funds.

  • Market opportunities: If you believe a particular fund (equity or debt) has good potential, you can redirect premiums to capitalize on that.

  • Life stage changes: Milestones like marriage or nearing retirement might prompt you to adjust your investment strategy through premium redirection.

Difference Between Premium Redirection and Fund Switching

Fund switch and premium redirection are often believed to be the same thing, but they have a key difference: the key difference is when the change is applied.

  • Premium redirection impacts your future investments. Let's say you're currently investing 100% in equity funds but want to reduce risk. With premium redirection, you can choose to allocate your upcoming premiums to a debt fund instead. This leaves your existing investments untouched, but future money goes towards the fund you select now.

  • Fund switching affects your existing investments. Imagine the same scenario: 100% equity funds. With a fund switch, you can move some or all of your existing units from the equity fund to a debt fund or vice versa. This allows you to adjust your current portfolio allocation.

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Difference Between Premium Redirection and Portfolio Management Strategies

Both premium redirection and portfolio management strategies are strategies for managing your investments within a Unit Linked Insurance Plan (ULIP), but they work in different ways:

  1. Premium Redirection

    • Focuses on future premium allocation.

    • Allows you to choose how upcoming premiums are invested within the ULIP's available fund options (e.g., equity, debt, balanced).

    • Doesn't affect how your existing investments are allocated.

    • Useful for adapting your investment strategy based on changing risk tolerance or market conditions.

    • May require manual intervention each time you want to change allocation.

  2. Portfolio Management Strategies

    • Automates the investment process.

    • You choose a pre-defined strategy based on your risk appetite (e.g., aggressive, balanced, conservative).

    • The strategy automatically allocates your premiums across different funds to maintain a desired asset allocation.

    • This allocation may rebalance periodically to maintain the target risk profile.

    • Less hands-on approach, but limits your control over individual investments.

Why is the Premium Redirection Feature Useful?

Premium redirection is useful for investors who want to be flexible with their ULIP investment. It lets you adjust how future premiums are invested based on market conditions or your risk tolerance. Imagine it as changing where your next paycheck goes - more towards aggressive investments when you're feeling bold, or towards safer options during market downturns.

FAQs

  • What is the premium charge in ULIP?

    This is a one-time deduction from your first-year premium to cover initial expenses like policy issuance, agent commissions, and administrative costs.
  • What is the premium payable towards a ULIP?

    The premium payable towards a ULIP is the amount you pay regularly (monthly, quarterly, or annually) to keep the policy active. This premium is then divided:
    • A portion goes towards life insurance coverage.

    • The remaining amount, after deducting any charges, gets invested in your chosen fund option(s) within the ULIP.

  • How often can I use premium redirection?

    This depends on your specific ULIP plan. Some insurers allow redirection with every premium payment, while others may have limitations. Always refer to your policy documents or contact your insurer for details.
  • Are there any charges associated with premium redirection?

    Generally, premium redirection does not incur additional charges. However, it can vary from insurer to insurer; some ULIPs may limit the number of free redirections allowed per year.

Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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