ULIP Investment: SBI vs ICICI - Which is Better for a 7-Year Payment and 15-Year Policy?

Ans: Health / Medical Insurance and term insurance for protection and Mutual Funds for Investments are better options.

ULIPs are not ideal for investment purpose; instead mutual funds should be used for investments

For 10 years (and then switch to debt funds i.e at the age of 57)

1. Axis ESG Equity fund – Growth

2. UTI Flexi Cap fund – Growth

3. PPFAS Flexi Cap – Growth

4. DSP Quant Fund – Growth

For term insurance look at LIs with high claim settlement ratio and choose for the same at your convenience.

BAJAJ ALLIANZ LIFE GOAL ASSURE - Premium Payment Term 5 Years, Started premium from March 2018 (Premium paid yearly - 2 lakh rs per annum)

HDFC Life click to invest - Premium Payment Term 5 Years, Started premium from March 2018 (Premium paid yearly - 2 lakh rs per annum)

Edelweiss Tokio Life - Wealth Plus Premium Payment Term 5 Years, Started premium from March 2018 (Premium paid yearly - 84,000 rs per annum)

Ans: Unit-Linked Insurance Plans (ULIPs) combine insurance and investment components, offering both life insurance coverage and the opportunity to invest in various funds. While ULIPs can be suitable for some investors, they come with both advantages and disadvantages.

Here are the pros and cons of ULIPs:

Pros:

• Insurance and Investment Combo: ULIPs provide a dual benefit of life insurance and investment. This can be appealing for individuals looking for a single product that serves both purposes.
• Flexibility: Investors can choose from a range of funds based on their risk tolerance and investment goals. These funds can include equity funds, debt funds, or a mix of both.
• Tax Benefits: ULIPs offer tax benefits under Section 80C of the Income Tax Act for the premium paid. Additionally, the maturity amount and death benefit are usually tax-free under Section 10(10D).
• Switching Options: ULIPs typically allow investors to switch between different funds based on changing market conditions or their investment objectives.
• Long-Term Wealth Creation: If held for the long term, ULIPs have the potential to generate returns that could help in wealth creation.

Cons:

• High Charges: ULIPs often come with high charges, including premium allocation charges, fund management charges, policy administration charges, and mortality charges. These charges can significantly impact the returns.
• Complexity: Understanding the various components of a ULIP, such as charges, fund options, and lock-in periods, can be complex. Investors may find it challenging to grasp the intricacies of the product.
• Market-Linked Risk: The investment component of ULIPs is subject to market risks. If the market performs poorly, the investment returns may be lower, and in some cases, investors may even face a loss.
• Lock-In Period: ULIPs usually come with a lock-in period, during which the policyholder cannot surrender the policy without incurring charges. This lock-in period can range from 5 to 15 years.
• Mortality Charges: A portion of the premium goes towards providing life insurance coverage, and this is charged as mortality charges. These charges can be relatively high, especially for older individuals.

Returns:

The returns from ULIPs depend on various factors, including the market performance, fund selection, and the duration for which the policy is held. Returns are not guaranteed and can vary. It's essential to carefully consider your risk tolerance, financial goals, and the charges associated with ULIPs before investing.

Before making any decision, it's advisable to thoroughly understand the terms and conditions of the ULIP, compare it with other investment options, and, if necessary, consult with a financial advisor.

Ans: Hi Neha! Considering that you already have a term insurance policy for Rs 1 crore, it's great that your family is covered in case of unforeseen events. When deciding between ULIPs (Unit Linked Insurance Plans) and mutual funds for savings and investment, here are some key points to consider:

ULIP vs Mutual Funds:

1. Cost and Charges:

ULIPs often have higher charges, such as premium allocation charges, mortality charges, and fund management fees. Mutual funds, on the other hand, usually have lower expense ratios, especially if you are investing in direct plans.

2. Flexibility:

Mutual funds offer more flexibility in terms of choosing different fund categories (large-cap, mid-cap, small-cap, debt, etc.), switching between funds, and liquidity.

ULIPs typically lock in your money for five years and come with restrictions on switching funds.

3. Investment Returns:

Mutual funds tend to offer more transparency in terms of returns and performance as they are pure investment vehicles. ULIPs, being a combination of insurance and investment, may offer lower returns compared to dedicated mutual funds.

4. Tax Benefits:

ULIPs offer tax benefits under Section 80C of the Income Tax Act, just like ELSS (Equity Linked Savings Scheme) mutual funds. However, after the budget of 2021, the tax-free advantage for ULIPs is limited if the annual premium exceeds Rs 2.5 lakh.

5. Purpose:

ULIPs mix insurance and investment, but it’s generally recommended to keep insurance and investments separate for better clarity and optimisation. Term insurance covers risk, while mutual funds focus purely on growing your wealth.

6. Recommendation:

Since you already have a good term insurance plan, it would be more beneficial to continue with or increase your investment in mutual funds. Mutual funds will provide better flexibility, potential returns, and lower costs in the long run compared to ULIPs. You can choose funds based on your risk profile and financial goals.

Ans: Hello;

If you have term life insurance cover 10X of your annual income then it's okay else you need to enhance your term cover.

Never couple investment with insurance.

Now even the maturity proceeds of ULIPs are subject to capital gain tax, with some conditions.

It is better to stay invested in mutual funds for long term growth, is my view.

Best wishes;

Ans: Hello;

My suggestion would be to opt for an adequate term life insurance and invest through mutual funds and NPS for other goals.

But if you are keen about ULIP only then you may select the insurer/plan of your choice or as advised by your insurance advisor.

However in the Ulip plan have 80% allocation to pure equity funds and balance 20% to debt funds to beginwith and tweak it over time as you grow older(nearing policy maturity date; ~ 30 years later) so by the time the policy is about to mature your equity allocation should be 40% or less.

Happy Investing;