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Home / Saving Schemes

Unit Linked Insurance Plan

The Unit Linked Insurance Plan (ULIP) is a fairly reasonable life insurance cover available. Even people who do not need the cover can benefit by going in for ULIP rather than PPF or Tax Saving Bonds.

Unit Linked Insurance Plans offer a tax rebate under Section 88 with a tax-free dividend and the benefit of long-term capital gains after maturity. The yield is fairly high if the age at entry is young and it descends slowly along with the age of the holder. Being a non-medical cover by character, the maximum target amount under ULIP is restricted to Rs.75,000/-

Launched nearly 20 years ago, ULIP is available in two term periods, one for 10 years and the other for 15 years. It provides numerous benefits for its investors such as life insurance cover at a nominal premium, accident cover, decent rate of returns and concessions under Sections 88 and 48(2).

ULIP's annual contribution towards life insurance premium is a tenth and a fifteenth of the target amount for the 10 and 15 year plans respectively. Insurance is limited only to premiums paid if death occurs due to natural causes within 6 months of the policy's first year. During the latter part of the year, the cover is provided at 50 percent of the Sum Assured. However, this restriction is not enforced if death occurs in an accident.

A maturity bonus of 5 percent and 7.5 percent is also granted on the 10 and 15 year plans respectively. Obviously, no bonus is granted on premature withdrawals. Strangely, the bonus in not available after premature death either, unless it occurs after the payment of the last contribution.

Prevalent sale prices are applied on the contributions and accrued dividends for crediting units to the account. At maturity, the total units to the credit of the account are repurchased at the then-prevailing repurchase price. 

ULIP does not offer any life as well as accident cover to minors. These covers are not available even after a minor attains majority during the policy term period. Consequently, no premium is payable to LIC by UTI and to that extent, the redemption price would be higher.

Since ULIP has no nomination facility, the option to include a second profile in included within the application form. In case, the investor wishes to terminate his scheme after 5 years, then only 0.5 percent of the target amount is deducted. In case premature withdrawals are made within 5 years, the rebate enjoyed in the year of contribution will be included in the total income during the year of withdrawal for the purpose of income tax.

Basically, ULIP provides a unique utility by which an investor can obtain insurance cover as well as earn attractive returns. Agreed the cover with ULIP is restricted to Rs.75,000/- so if the investor desires additional cover, he can always go in for a Life insurance policy.

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