How Staggered ULIP Maturity Pay-Outs May Help You from Market Recovery Later

The pandemic has got businesses to a standstill across the globe. The stock market is severely impacted due to the same. In India, the situation is no different. To help investors who are affected by this impact, the Insurance Regulatory and Development Authority of India (IRDAI) has allowed insurers to offer a staggered payout option. This facility is available for those whose ULIP policy is maturing this year.

In fact, the IRDAI previously encouraged the insurers to offer a grace period of 30 days to the investors for making their ULIP premium payments. Moreover, those whose policy has matured in the months of March, April and May, can postpone the maturity date to the next five years.

IRDAI has guided the insurers to provide settlement options to the investors with respect to Regulation 25 of IRDA, 2013. This regulation is applicable to ULIP investments that offer a lump sum payment of its fund value.

As a smart investor, you should look for a possible advantage or downside associated with this switching option. You should evaluate your current financial situation and decide whether to defer the policy payout by a few years, especially if you are to receive a lump sum amount. In case you are receiving a definite payout, you can choose a periodicity depending on what your insurer offers. It can be anything from monthly, quarterly, half-yearly, or annual mode.

For those whose ULIP investment has matured by May 2020 might face a severe impact of the stock market fluctuations. The amount they receive as payout depends on the net asset value (NAV) of the units at the time of maturity. That way, the final amount might be relatively low than the expected return rate. All this is due to the impact of the virus on the environment and businesses worldwide.

Because of this very reason, the IRDAI has allowed insurers to offer the staggered payout options to the policyholder whose ULIPs are maturing this year. The insurers are also instructed to clearly explain their investors regarding the downside and risks involved in the same. Moreover, policyholders can consult a financial expert and get their investment portfolio examined before taking any decision.

Now, considering that in a few years, the stock market will recover and the NAV of the units will be relatively higher than what it is today. Consequently, this will improve the rate of return the investors shall receive and thus enhance their overall ULIP experience.

After this, if you are wondering, “why should I invest in ULIP now then keep reading. Market fluctuations are quite common. But the ULIP benefits remain the same. The following are a few ULIP benefits that you should know about –

  • ULIPs offer dual benefits of life insurance cover and wealth creation all under a single policy.
  • ULIPs give you the liberty to invest in funds of your choice – debt funds, equity funds, or a combination of the two. You should make investments depending on your risk appetite. Those with a low-risk appetite should consider investing in debt funds. Others with a high-risk appetite can invest in equity-oriented funds.
  • The policy offers a fund switching facility. That way, you can make changes to your investment portfolio depending on the market performance of the funds.
  • ULIPs offer tax benefits on the premiums paid toward the policy. The amount can be claimed for tax deductions under Section 80C of the Income Tax Act. Moreover, the death and maturity benefits of the policy are tax-free under Section 10(10D).

In The End

Your current situation will not last for long. If your ULIPs are about to mature in the coming month, evaluate your current finances and decide whether you really need the payout amount. If you can make do without it in the near future, you should consider postponing the maturity date. Lastly, knowing how ULIP works, in the end, will ensure that it is aligned with your future financial goals.

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