Why Should ULIPs Be Part of Your Financial Planning in 2024?

Financial planning requires agility and growth potential. ULIPs (Unit-Linked Insurance Plans) have undergone a significant makeover, offering a powerful two-in-one scheme: life insurance coverage and an opportunity to invest in high-performing market-linked funds. With increased transparency, flexibility, and a focus on investor benefits, ULIPs are no longer the products they once were.

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The ULIP Revolution in the Insurance Industry

Unit-Linked Insurance Plans (ULIPs) have significantly transformed in recent years. Once full of misconceptions and burdened by a lack of transparency, ULIPs are now emerging as a powerful tool for financial growth in 2024. This shift is partly due to a maturing market, stricter regulations, and a renewed focus on investor protection. Insurance companies are now designing ULIP products that meet a wider range of needs and risk appetites, making them a more flexible option for building a well-rounded financial portfolio. 

Top ULIP Funds
Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
11,839 Cr
Returns
21.83%
Returns
23.81%
Highest Returns
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19.95%
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1,772 Cr
Returns
23.15%
Returns
27.3%
Highest Returns
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19.47%
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6,136 Cr
Returns
26.84%
Returns
27.87%
Highest Returns
Returns
18.81%
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2,984 Cr
Returns
21.78%
Returns
23.76%
Highest Returns
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17.76%
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4,172 Cr
Returns
21.74%
Highest Returns
Returns
20%
Returns
17.43%
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Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
247 Cr
Returns
11.88%
Returns
13.92%
Highest Returns
Returns
11.99%
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352 Cr
Returns
12.26%
Returns
12.56%
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11.38%
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526 Cr
Returns
9.79%
Returns
10.72%
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Returns
10.34%
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837 Cr
Returns
11.67%
Returns
11.81%
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Returns
10.23%
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22 Cr
Returns
12.6%
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Returns
11.89%
Returns
10.17%
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Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
494 Cr
Returns
16.43%
Returns
17.28%
Highest Returns
Returns
15.3%
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242 Cr
Returns
6.94%
Returns
7.91%
Returns
8.81%
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786 Cr
Returns
5.4%
Returns
6.88%
Returns
8.1%
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302 Cr
Returns
5.86%
Returns
6.8%
Returns
7.79%
Highest Returns
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465 Cr
Returns
5.1%
Returns
6.93%
Returns
7.78%
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The Past and Present of ULIPs

The Early Days of ULIPs and Why They Got a Bad Reputation?

ULIPs have come a long way; their past wasn't always great. Here's what their early days looked like and the challenges they faced:

  • The Good Intention: ULIPs were introduced in the 1970s to combine life insurance protection with the potential for growth through market-linked investments. This offered a unique benefit compared to traditional plans.

  • Lost in Translation: The initial focus seemed to be on selling insurance with an investment tied on. This led to a lack of clarity about how the investment component actually worked.

  • High Costs, Low Transparency: ULIPs in the early days often came with high hidden charges and complex fee structures. Investors weren't always fully informed about these costs, making it difficult to understand the true value of ULIPs.

  • Hidden Costs: Early ULIPs came loaded with high charges – upfront commissions, policy allocation charges, and more. This meant less of your money actually went towards investment.

  • Confusing Structure: The investment aspect of ULIPs could be complex, with fees and features not always clearly explained. This left many investors feeling lost and unsure.

  • Focus on Insurance, Not Investment: The initial push for ULIPs seemed more about selling insurance with an investment add-on rather than highlighting the long-term growth potential. 

How ULIPs Became Investor-Friendly?

ULIPs have undergone a major change recently. Gone are the days of hidden charges and confusing structures. Here's how regulations and a shift in focus made ULIPs more investor-friendly:

  • IRDAI’s Role: The Insurance Regulatory and Development Authority of India (IRDAI) stepped up with stricter regulations. These regulations mandated clear communication of charges, product features, and investment options. No more hidden fees or surprises. 

  • Cost Cutting Crusade: ULIP charges have been significantly reduced. Lower upfront commissions, allocation charges, and a focus on efficiency have made ULIPs more cost-effective. More of your money goes towards growing your investment! For example:

    • They have completely eliminated policy administration and premium allocation charges.

    • After maturity, they also return the mortality charge.

    • In addition, fund management charges can now be a maximum of 1.35% per annum.

  • Transparency: ULIPs now have clear product brochures. These brochures explain fees, fund performance, and features in an easy-to-understand manner, empowering investors to make informed decisions.

  • Flexibility: Modern ULIPs offer more flexibility. You can invest as much as you want in equity and debt according to your risk appetite. You can invest 100% in equity or 100% in debt. And many companies don't even charge for fund switching!

  • Focus on Investment Value: The core focus of ULIPs has shifted. Now, the emphasis is on the potential for market-linked growth alongside the life cover benefit. This aligns better with investors seeking long-term wealth creation.

  • Increased Accessibility: Traditionally, ULIPs might have involved a lot of paperwork and limited access to information. Digitization has changed that. Online portals and mobile apps allow investors to easily access policy details, monitor fund performance, and make switches between funds. This transparency and ease of use make ULIPs more appealing to investors.

Invest more and Get more with ULIP Plan Invest more and Get more with ULIP Plan

Here's the best part of New Age ULIPs:

Imagine if something unfortunate happens to you and you are no longer around. What will happen to your family and their future? Don't worry! With the waiver of premium benefit, the insurance company will pay your premium itself, so that your ULIP plan does not lapse and your investment for your goals continues.

Examples of New-Age ULIPs:

Features  HDFC Click 2 Wealth TATA ISIP Bajaj Goal-Based Saving  Canara Promise 4 Growth
Premium Allocation Charges  NIL NIL NIL NIL
Policy Admin Charge NIL NIL NIL NIL
Return of Morality Charges Yes at Maturity  Yes, in the 11th year mortality charges of 1st year will be returned and so on Yes, at maturity (125% of mortality charges are returned) Yes at maturity
Other Additional Features  Extra 1% allocation for the first 5 years (a) 2% Wealth Boosters added every 5 years starting 10th year onwards as %age of average of fund value Extra 3% allocation in 1st years Loyalty additions every 5 years after the 5th year & wealth boosters after the 10th year

How 4G ULIPs Changed the Perception?

4G ULIPs, or Fourth Generation Unit Linked Insurance Plans, represent a significant upgrade in the ULIP industry. They address the past shortcomings of ULIPs and offer a more investor-friendly experience. Here's how 4G ULIPs have changed the game:

What are 4G ULIPs?

These are ULIPs with a renewed focus on transparency, flexibility, and cost-effectiveness.

Benefits of 4G ULIPs:

  • Lower Costs: IRDAI regulations and a focus on efficiency have resulted in significantly reduced charges. This translates to more of your money being invested and potentially growing.

  • Enhanced Transparency: 4G ULIPs come with clear communication of fees, fund performance, and product features.

  • Flexibility is King: Investors can now switch between investment funds within the ULIP. This allows you to adapt your investment strategy to changing market conditions and evolving goals.

  • Focus on Investment Value: The emphasis in 4G ULIPs has shifted towards the potential for market-linked growth alongside the life cover benefit. This aligns better with investors seeking long-term wealth creation.

How 4G ULIPs Reshaped the Industry:

  • Restored Trust: By addressing past issues and prioritizing transparency, 4G ULIPs have helped rebuild trust in ULIPs as a reliable financial tool.

  • Empowered Investors: Clear communication and flexibility empower investors to make informed decisions and manage their ULIPs effectively.

  • Increased Competition: The focus on cost-effectiveness and investor benefits has led to increased competition among insurers, potentially leading to even better ULIP options in the future.

Are ULIPs Right for You?

ULIPs can be a strong contender if you want:

  • Growth Potential: Invest for long-term wealth creation alongside life cover.

  • Flexibility: Adapt your investment strategy within the ULIP as your goals evolve.

  • Transparency: Make informed decisions with clear communication of fees and features.

Conclusion

In conclusion, ULIPs have shed their past baggage and emerged as strong contenders in the financial planning area. With increased transparency, flexibility, and the potential for market-linked growth, ULIPs are definitely worth considering for your financial planning and investments in 2024.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^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.
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~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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Insurers Offering ULIPs

Tata AIA

Aditya Birla Sun Life

Bajaj Allianz

Max Life

HDFC Life

ICICI Prudential

Bharti AXA Life

Edelweiss Life

Kotak Life

Future Generali

PNB MetLife

SBI Life

Aviva

Bandhan Life

Canara HSBC

IDBI Federal

IndiaFirst

Pramerica Life

Reliance Life

Sahara Life

Shriram Life

Star Union

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