What Has Changed With ULIP In India
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ULIPs provide investors with flexibility, something that traditional insurance plans lacked. Apart from the dual benefits of insurance and investment, it also offers some revolutionary features such as good returns, shorter tenures, and tax benefits.
Evolution of ULIPs
The Indian investment market has been through many changes over the years. Just like any other investment instruments, ULIP plans have evolved over the past decade ever since they were first launched.
At present, the ULIP plans available in the market are better and come with advanced features. But the structure of the policy has undergone some major transformation. Let us have a close look at the evolution of ULIPs.
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Before 2010
After the launch of ULIP Investment in the market, the popularity of the product decreased due to excessive front-load costs and other charges. Moreover, the plan was widely mis-sold as a three-year savings plan.
Incorrect information regarding the lock-in period was conveyed to the customers, wherein they were told that they would have to pay premiums not exceeding three years. Where in fact, long-term investment in ULIP plans is essential to yield good ULIP returns. When investors realised that a majority of the portion of the premiums paid is utilised for additional charges and the net fund value was much lesser, it led to the decrease in the popularity of ULIPs.
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Between 2010 and 2015
When the Insurance Regulatory and Development Authority of India (IRDAI) realised that ULIP plans were mis-sold across the country, and investors were duped for crores of rupees, they imposed some guidelines. The primary purpose of stricter rules was to improve the returns earned by the investors.
Thus, in September 2010, several ULIP charges were limited, the lock-in period increased to five years, and the minimum protection cover was raised to 10 times the annual premium paid.
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From 2015 onwards
In the year 2015, the charges associated with ULIP plans underwent significant changes. Providers started capping the mortality charges and fund management charges, making the product more appealing to the audience.
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ULIP Plans Today
Despite a rocky start, ULIP plans today are widely popular as they yield high returns in the long run. In fact, the product is now being structured to become more cost-efficient. Investors are more precise about the concept that ULIPs are and are starting to make a significant investment in the same. Along with ULIP tax benefits, the wealth built over the years with the help of ULIP plans can be utilised for long-term goals like retirement planning.
Conclusion
The amount you invest in a ULIP plan is eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The maximum amount deductible under it is INR 1.50 Lakh. Moreover, when the policy matures, the amount you receive is exempted from tax as well under Section 10 (10D).
Also read- What Is A General Provident Fund And How Does It Work
