The Insurance Regulatory and Development Authority, or popularly known as IRDAI, is the regulator of the insurance sector. This statutory body monitors financial soundness, fair dealing, speedy claim settlement, etc. and promotes the development of the insurance industry. Similarly, for the Unit-Linked Insurance Plans, the regulatory body introduced some new rules regarding aspects such as the coverage sum, revival period, and partial withdrawal. The new changes shall be effective from February 2020 to benefit the policyholders of ULIP plans. So, go through the below pointers to know all about the rules for ULIP plans.
Higher Revival Period
With the new changes made by the IRDAI, you will get more time to revive your Unit-Linked Insurance Plan. This happens when you discontinue your insurance premium payment and thus, your policy ends up lapsing. If you want to gain the insurance coverage back, you must revive your ULIP policy within a set period. Previously, as per the IRDAI, the revival period was of 2 years from the date of premium discontinuance. Now, the revival period has been changed to 3 years for ULIP policies. Therefore, you can get your coverage by paying off the pending premiums and charges within 3 years of discontinuing the premium payment.
Partial Withdrawal Under ULIP
Though no withdrawals are allowed during the 5-year lock-in period, you can make partial ones on completing 5 years. This amount can be used for any financial emergencies or to meet a life goal. Earlier, there were no rules in place regarding the partial withdrawal feature. However, the IRDAI recently made changes and thus, you can make a withdrawal of up to 25% of the fund value present at the time on completing the lock-in period. Also, it is permitted for reasons such as higher education, purchasing a house, family wedding, diagnosis of critical illness, etc.
Lower Sum Assured of ULIP
Sum assured is the amount you secure for your loved ones in case of an unfortunate mishap. This death benefit is paid out to the beneficiary in your absence to offer financial independence to your family. The previous requirement for the sum assured of ULIP was that the coverage should be 10 times your annual premium. But now the sum assured can be 7 times your annual premium, offering you the option of a lower coverage sum. This choice of a lower sum assured was only available to policyholders above the age of 45 years. However, the IRDAI has now made it available to insured individuals under 45 years of age as well.
But you must remember the following pointers while opting for a lower sum assured amount:
- As your sum assured amount is lower, the mortality charges will also reduce as this fee is charged for providing you with a life cover.
- In case the coverage amount is less than 10 times the premium, then the maturity benefit is taxable. Thus, you must consider this aspect.
- The death benefit is tax-free even if the sum assured is less than 10 times the annual premium
Check out the ULIP calculator to estimate the right insurance coverage you should get to safeguard your loved one’s interests!
Tax Benefits
This new tax implication was introduced in Budget 2021 and changed how you can claim ULIP tax benefits. Therefore, ULIPs offer you tax benefits on the premium paid, the death benefit and the maturity payout. The premiums can be claimed under Section 80C of the Income Tax Act up to a limit of INR 1.5 Lakh. The maturity and death payout can be claimed under Section 10(10D) as tax-free. However, some changes have been made to the tax perks on the maturity payout. In case your annual premium amount is more than INR 2.5 Lakh, then your ULIP plans returns shall be taxed as capital gains. Thus, to claim the lump sum corpus as tax-free, your premium should be less than the specified limit. But this is only applicable to newly bought ULIP policies.
With this, you must have understood the new changes made to the insurance policy and the ULIP plans returns. If you still haven’t purchased a Unit-Linked Insurance Plan, get one today to fulfil your life goals! It is recommended to go through your policy documents and understand the exclusions before signing any papers. This shall save you last-minute troubles!
