In this video, we will discuss the switching facility in ULIPs (unit linked insurance plans)
Edited highlights
0:08 In this video, we will discuss the switching facility in ULIPs (unit linked insurance plans)
0:48 ULIPs allow you to invest in equity and debt markets and also provide life insurance
0:56 ULIPs provide a lot of flexibility to the policyholder
1:15 In ULIPs, the policyholder has to choose allocation among equity, debt and money market funds
1:39 Equity funds invests in equity markets, debt funds invest in various bonds and money market fund or liquid funds that invest in the money market securities that have a maximum tenure of 1 year
4:08 The allocation among various funds is typically chosen at the time of buying the ULIP
4:18 During the ULIP term one can change the allocation to equity fund, debt fund and liquid fund from time to time depending on market conditions and need
4:38 This facility or switching facility is used by making an application to the life insurance company
5:27 Life insurance companies allow certain number of switches free of cost. Some companies allow 5 free switches in any policy year while others give up to 8 switches
5:47 Beyond that threshold limit, charges are made and adjusted with ULIP units
7:24 ULIP proceeds ad death benefit are tax free regardless of the investment in any kind of ULIP fund
7:49 While movement from ULIP funds is tax free, in mutual funds the tax is according to the mutual fund category like equity fund or debt fund
8:24 This includes long term capital gains (LTCG) tax and short term capital gains tax for equity funds and debt funds
9:36 ULIPs allow you to move your money from higher risk investments like equity funds to lower risk debt funds, about 3 years from the time you need money
10:00 Nearer to time of use, you could move the money to liquid funds. Unlike mutual funds, taxation is not happening in ULIPs
10:20 This de-risking of gains from ULIP equity funds is a tax free process whereas it is not so in case of mutual funds
10:27 Both mutual funds and ULIPs have their pros and cons and it depends on the individual to check which combination of features work for them
10:42 You also need to check whether you would like to foot some of the ULIP charges
