ULPs: A layman's guide

Rahul is confused! He has been spending hours' together going through the many colourful pamphlets that are spread on his desk!

His fingers are deftly pressing the buttons on the calculator from time to time and writing down something and his puzzled looks clearly reflect his perplexed mind!

Rahul's confusion is about choosing a single life insurance plan that would take care of his both investment and insurance requirements.

On one hand, Rahul could invest in the traditional term plan or endowment policy, a pure insurance policy that would give his dependents adequate money for their survival after his death and the premiums will be on the lower side!

On the flip side, Rahul will not get any returns if he were to survive the term policy!

Then there is the unit-linked insurance plan or ULIP investing in which Rahul would have more control over his money. Plus, he would also get the benefits of continued life coverage after a few years even in case of non-payment of premiums!

However, that would mean a truncated life cover.

Besides buying an ULIP is always costlier than a term policy. There are extra charges like the fund management costs that eat into the premiums. Therefore, Rahul is back to square one!

He is not alone! Most of us have this confusion when choosing the right life insurance policy. We can't decide whether to go for the traditional term policy or the ULIP.

Well, what if there is a policy that would give the best of both worlds? Welcome to universal life policy or ULP!

What are ULPs?

Simply put, an ULP can give you the best of endowment and ULIPs. Unlike the existing policies, a pure ULP product will breathe fresh life into the industry.

The policy is flexible and an investor gets a freehand to change the premium amount, tenure and the sum assured during the policy period.

A pure ULP can allow the investor to change the premium amount in tune with his changing income during the period of the policy.

An investor could also change the sum assured of the policy keeping it in line with his changing insurance needs driven by his income and number of dependents. Similarly, the tenure can also be altered.

However, the Indian insurance market is yet to see ULPs in its pure form. The Insurance Regulatory and Development Authority will have the final say on allowing insurance companies to introduce flexibility into the plan.

How do ULPs work?

A pure ULP is more like a term policy where an investment manager takes control over one's investment. However, unlike the ULIPs there would be no fund management charges that eat into the premium. 

Also ULPs remain in force with a reduced sum assured if one chooses to stop paying premiums. Just like a term policy, the ULP plan gives bonus as declared by the insurance company for every agreed time frame.

ULPs also give one tax benefits under section 10 10(D) and 80C with the proceeds on maturity put on tax-free bracket.

How to decide if it is suitable for you?

If you are someone like Rahul who needs a life insurance policy that would take care of his family needs upon his death and returns upon the maturity of the policy even during his lifetime the ULP could be your best option!

In short, the ULP is a perfect combo of the death benefits an endowment policy gives and the transparency and returns of ULIPs.

The ULP is also flexible in nature and allows you to change the premium amount, tenure and sum assured during the policy period though this option might take some time to hit the Indian markets.

And ULP doesn't fail you on other fronts as it has other benefits like bonus on your investments, tax benefits on maturity returns, no fund management charges and a reduced sum assured if you stop paying the premiums.

On the flip side, a pure ULP is more like a term policy where you do not know where your money is invested!

A new entrant into the huge insurance industry in India, ULP is still a nascent market! Despite a positive nod from the Insurance Regulatory and Development Authority of India for the introduction of ULPs, the insurance market is yet to see the ULPs in its pure form!

There are only two players in the market who offer policies similar to ULP, namely Bharti Axa Life Insurance and Max New York Life.