All you Need to Know about ULIP Premiums

ULIPs are unique investment products that also provide insurance at the same time. The premiums that you pay for your ULIPs are dedicated to fulfilling two goals. Securing a life cover to provide financial protection and investing in equity, debt, or balanced funds to generate wealth.

Now that you know the importance of investing in such plans, it is equally relevant to understand their premiums. Today, let’s understand how ULIPs have evolved over time and everything there is to know about their premiums.

Today, some of the best ULIP are fourth-generation products that come with zero to negligible policy allocation or administration charges. Moreover, the premiums are now more affordable than ever. These ULIPs are designed for transparency, allowing you to clearly track charges, fund performance, and benefits in real-time. Many plans also let you switch between funds based on your risk appetite without extra costs.

In addition, newer ULIPs offer features like loyalty additions, wealth boosters, and partial withdrawals during emergencies. These benefits make ULIPs more flexible and rewarding for long-term goals like retirement or your child’s future.

However, before you purchase a policy, you need to understand the precise features of ULIP premiums, how they impact your policy, and the various terms and conditions that are associated with it.

What are the Features of ULIP Premiums?

Here are a few points that can help you understand the features of ULIP premiums:

• Premium Allocation Charges (PAC): Premium allocation charges are generally considered to be front-loaded charges. Here, a fixed percentage of your ULIP premiums is deducted as charges towards allocating the remainder of your premium towards the equity, debt or balanced funds of your choice.
  
  The premium allocation charges levied are higher towards the initial years of your policy and taper off towards the end. Your allocation charges may vary depending on the amount of your premium, the frequency of premium payment (paid per month or year, etc), and the mode of payment.
• Taxation: Tax deductions up to a maximum of ₹1.5 lakh can be claimed on ULIP premiums paid in a year, as per Section 80C of the Income Tax Act. However, to avail of these tax benefits, the premiums paid should be less than 10% of the sum assured or 20% of the sum assured, depending on whether the policy was bought before or after April 2012, respectively.
  
  Moreover, Section 80C stipulates that regular premium payment lasting the entire lock-in period of 5 years is essential to avail tax benefits. After this, the premium is added to your income and taxed accordingly.
• Top-up Premiums: Some of the best ULIP allow policyholders to invest an additional sum of money (known as a top-up premium) over and above their regular ULIP premium. The top-up premium is generally only used towards your ULIP’s investment component and not towards its insurance component.
  
  The premiums paid towards topping up your ULIP should not exceed a certain percentage of the overall premiums paid towards the regular policy. Premium allocation charges for your top-up premiums may range anywhere from 1% to 3%, depending on your insurance provider’s policies.
• Premium Redirection: Often, policyholders may find their needs and goals changing over time. One’s investment goals, too, would need to be moulded as per their own evolving personal and professional goals. ULIPs allow you to do just that, with the help of the premium redirection facilities. You can redirect your premiums from one fund to another, as per your evolving requirements.
  
  Moreover, since ULIPs are a market-linked product, it is crucial that one gauges market movements and aligns their investment strategies in order to make the most of these movements. You can switch between equity and debt funds as per changing market movements and your risk appetite. When redirecting your premium, you will likely incur certain charges, commonly known as premium redirection charges.
• Minimum Sum Assured: The Sum Assured is the payout doled out to the policyholder’s beneficiaries upon the death of the policyholder. A minimum sum assured is the minimum ratio of premiums to sum assured permitted by the IRDAI (Insurance and Regulatory Department of India). Opting for a lower sum assured would entail the lowering of your insurance cover, while maximising the amount invested in equity or debt funds.
  
  Currently, one can opt for a sum assured that is a minimum of 7 times their yearly premium. Earlier, only those 45 years and above could opt for a minimum sum assured of 7 times their yearly premium. However, IRDAI announced that even those below 45 years can avail of this provision.
  
  One should note that even though opting for the minimum sum assured would likely maximise one’s returns from the market, it would result in no tax benefits on premiums for the policyholder.
• Premium Lock-in Period: Another important aspect of ULIPs is the lock-in period. Most ULIP plans have a mandatory five-year lock-in, which means you cannot make partial withdrawals or surrender the policy during this time. This feature is designed to promote long-term investment habits and reduce impulsive decisions based on short-term market changes.
  
  Since your funds remain invested without interruption, the lock-in period provides your money with a stable window to grow, potentially benefiting from market cycles. It also ensures that the life cover remains active during this phase, offering financial protection to your loved ones. For first-time investors, this period acts as a commitment tool that encourages regular saving.
  
  Even after the lock-in ends, staying invested longer often results in better returns. In short, the lock-in is not just a restriction but a valuable feature that builds financial discipline and supports long-term wealth creation through consistent investment.
• Loyalty Additions and Wealth Boosters: Many ULIPs offer additional benefits, including loyalty additions and wealth boosters. These are extra units that get credited to your fund value when you continue your policy for a set number of years. They act as a reward for your long-term financial discipline and consistent premium payments.
  
  Loyalty additions usually start after a specific policy duration, while wealth boosters may be given at longer intervals, such as every five years or at the end of the policy term. These additions enhance your investment corpus without requiring any extra cost from your side. The idea is to encourage policyholders to stay invested for the full term, allowing them to enjoy greater growth potential.
  
  These features also help offset some of the initial charges in the early years, improving overall returns over time. In essence, ULIPs are designed to support patient investors by offering meaningful rewards for long-term commitment and steady contributions.

Conclusion

These terms can help you understand how choosing the right premium amount has a direct effect on your policy and the benefits available to you. Once you’ve thoroughly understood the terms and conditions of premiums associated with ULIPs, you can consider investing in the Promise4Growth Plus plan by Canara HSBC Life Insurance.

Our plans are flexible and fruitful, offering a variety of funding options for investments. Moreover, they can be customised as per your portfolio position as well. Apart from this, you can switch funds, redirect them and opt for partial withdrawals to take care of a financial emergency as well.

Let’s create a secure future for you and your loved ones together.