As the name says, investment insurance plan lets you invest as well as avail insurance simultaneously. It is an investment tool that provides security of funds, accumulate returns on your investment and provide life cover.
This investment tool helps you to financially plan for your long term goals. It helps you to accumulate funds for the later stage of your life and events like buying a house, starting a business etc. Insurance element in the plan ensures if something unexpectedly happens to the insured the sum assured along with accrued profit and bonus is paid to the nominee.
When you choose investment insurance plan, you have to determine the sum assured amount as well as the type of the funds you want to invest your savings in. While choosing the kind of investment funds you have to take into account your budget, income, your commitments, liquidity levels you prefer, your requirements and priorities and most importantly, your risk appetite.
Types of investment insurance plan
Insurance companies in India provide four kinds of investment insurance plans i.e.
Life Insurance Investment Plan
Unit-linked Insurance Plan
Guaranteed Return Plan
Life insurance investment plan: Under this plan, the insured looks forward to saving and accumulating funds for a motive, say a house, child’s education, his business or own new venture, or child’s marriage or something considerable that needs fund. The best part of life insurance investment plan is it gives equal weight to insurance and investment.
Unit-linked investment plan: Under this plan, insured’s funds are invested in equity funds. Equity funds are market-linked. That is, amount of profit would depend on the market conditions of the stock market. Therefore, equity funds are categorized as high-risk funds. The insured is able to invest in stock market by buying a number of units of equity funds. Equity funds can earn higher returns but at the same time there is equal level of risk involved in it. Nonetheless, you should invest in equity funds only if you have risk taking capacity. People, who prefer more exposure to investment, put their funds in unit-linked investment plan.
Traditional/endowment plans: Under this plan, the insured gets return on his investments but it is comparatively lower than the return on other kinds of investment plans. The premium amount kept aside for investment purpose is strictly invested in no-risk funds in which the returns are low but definite. If you are looking for a plan that can provide you higher insurance coverage with low but fixed returns you should buy this kind of plan.
Guaranteed return plan: Under this plan, the insured is offered a guaranteed amount after a specific period of time that the insured declares in the policy documents. The guarantee is provided according to the terms and conditions of the policy which is either highest net asset value or capital guarantee or it can be a maturity guarantee.
• It provides risk coverage along with returns on investments.
• It provides opportunity to invest with a specific goal in mind.
• You have the flexibility to choose the kind of funds you want to invest in that is, high risk funds or fixed-return funds
• In case of ULIP you can have a look on net asset value of your invested fund and switch from a kind of fund to another one.
• It provides tax benefits as premium paid for investment insurance plan qualifies for tax exemption u/s 80C of Income Tax Act 1961. Also, the payout at the time of maturity or death is exempted from tax u/s 10(10D).
• The insured has the facility to avail secured loan against his investment insurance plan.
• The individual investing in the plan has the flexibility to choose the kind of plan he wants to buy. That means, he can buy life insurance investment plan or ULIP, guaranteed return plan or endowment plan, as per his choice.
• Consider your income, budget, financial commitments, preferred liquidity levels and risk appetite before investing in investment insurance plan.
• Bear your motive clear for buying the life insurance investment plan. It brings clarity as to how much you want to save and by what period you want to utilize the accumulated fund.
• Consider your preferences before buying the plan. Is it higher life-cover or guaranteed returns or higher profits (higher risk) or major events of life for which you want to buy the plan for.
• Choose the investment period that overlaps the event you are building the corpus for.
• Choose your investments wisely and carefully as each investment insurance plan has a lock-in period, opting-out before which is not possible. And it might not be feasible to opt-out once the lock-in period is over.
• Do consider online investment insurance plans. It can help you to save thousands on your basic premium amount.
The plan that provides you insurance coverage and alongside provides you investment opportunity is investment insurance plan. What you pay as premium is allocated in two different ways. A part is utilized to generate returns for you and the other part is utilized as insurance fund to provide financial support to your loved ones at the time of unfortunate event.
There are different kinds of investment insurance plans in the Indian Insurance market. They are mainly categorized into four types:
Life insurance investment plan: It is the most common and most talked about insurance plan that helps you to accumulate funds and earn return on it by keeping the long term and short term financial milestones of your life in the view.
Unit-linked investment plan: The policyholder is able to invest his funds in market-linked instruments that is, equity. The profit generated is as per the market conditions. Therefore, there are chances linked to earn high profits but at the same time equal risk involves. It is the choice of investors who have risk bearing capacity.
Traditional or endowment plan: This plan provides life cover as well as return on investments. However this return is comparatively lower than that earned on Unit-linked investment insurance plan. Reason behind is- the amount allocated towards investment is put in no-risk funds. Returns in this kind of plan are lower but definite.
Guaranteed return plan: The plan provides guaranteed return over a specific period of time, which has been declared by the policyholder in the documents while signing. Guarantee is provided on the basis of certain terms and conditions.
In case you miss to pay premium on the due date, you get grace period of 30 days, generally. You need to pay premium in this duration otherwise your policy is lapsed. You will need to revive your policy by submitting various documents and penalty to the insurer. Until you revive your policy you are not provided insurance coverage.
Yes, it is necessary to undergo medical test before you buy investment insurance plan. The reason is that the insurer is providing you insurance coverage as well. On the basis of your actual state of health, the premium is calculated. Along with that, the amount you want to invest, in equity or fixed-return instruments, is added to your premium amount.
The amount of premium payable towards investment insurance plan is exempted from tax, like any other life insurance plan, under section 80C of Income Tax Act 1961. Also the returns received on the maturity as well as returns on investment are tax-free.