Various financial options have gotten the attention of many like never before with the rise of financial awareness. While a few consider adhering to the traditional investment plan approach, others seem eager to try out newer financial schemes. One such common plan is ULIPs. The full form of ULIP is unit linked insurance plan. Let’s read on to know all about this financial instrument in detail and the top reasons for considering this investment instrument.
How does ULIP function?
Based on the risk appetite level, ULIPs offer you the choice to invest your investible funds in a vast variety of instruments like debt funds or equities. The return on this financial plan is tax-free as per Section 10 (10 D) even though the premiums that you pay on this are tax deductible as per Section 80 C.
∙ You must ensure to select the life insurance level, premium amount, policy term and premium payment mode to match your financial goal before you participate in the capital market investment with ULIPs.
∙ The choice of upfront, recurring payment or lump sum payment on a monthly, half-yearly or annual basis and the frequency of premium instalments can be performed at your convenience.
∙ A part of your premium offer life insurance security.
∙ Based on your selection, the other portion of the premium is invested in the stock market i.e., debt, hybrid, and equity funds.
∙ In the case of equity investment, your fund is invested in stocks of the companies. Debt funds make your fund investment in treasury securities, bonds, and other safe vehicles.
∙ The coverage value is decided by the capital that you put in such funds. Your possibilities of generating higher returns enhance as you invest for a long time period.
∙ Your plan’s nominee tends to receive the assured amount in the occasion of an unfortunate happening during the insurance term to meet their financial goals and monetary mismatches.
ULIP basically is a financial scheme that offers both insurance and investment benefits. Here in this plan, you split your money into two portions. Firstly, your fund is invested in securing your life through a life insurance policy. Secondly, it is used for investing in market assets.
The earnings from the debt fund in the ULIP scheme are even tax-free in the investor’s hand, making it a unique financial option in comparison to other market-linked instruments. While everyone seems to be on the hunt for the best ULIP option, you must ensure first know the reasons why you must consider investing in this plan before making the move. In case, you are not sure whether you must put your money in a ULIP, mentioned here is a list of benefits to assist you make an informed choice.
Optimise your growth
You can select from various sources in ULIPs like equity investments, debt funds and balanced mutual funds. Based on your risk appetite, you can choose one of the options. In the case you are an individual with a high-risk appetite level, then you can opt for the equity mutual fund. If you are a risk-averse investor, then it is a wise move to consider debt mutual funds. So, selecting among various funds is based on the market movements and your risk level.
ULIP permits you to optimise your returns as well and this is unlike other financial options where you may not just get insured but even optimise your returns depending on the market levels.
As compared to other financial instruments, ULIP returns come with a high potential to provide financial benefits. Such high returns are possible only because of the clear flexibility between debt and equity mutual funds. Likewise, investing in the ULIP option qualify you for specific incentives and prizes. Insurers tend to provide bonuses and rewards in the form of loyalty bonuses and revenue multipliers.
Tax exemption for ULIP as per Section 80 C
ULIP investment is subject to a tax deduction as per Section 80 C. Annually, you as an investor can claim a tax deduction of up to Rs 1.50 on ULIP. Similarly, as per Section 10 D, the profits you avail on ULIP maturity are completely tax-free. Moreover, as per Section 10 (10 D), the sum assured received by the policy’s nominee on the demise of the insured is completely tax-free.
Riders under the ULIP plan
ULIP is one of the effective market-associated financial instruments as it permits you to purchase supplementary insurance for your dear ones through a rider or add-on plans like accidental death, critical illness, disability, etc., thus ensuring that your dependents are taken care of even post your unfortunate demise.
What are the things you must consider before purchasing ULIP?
There are various things that must be factored in when buying ULIPs. A few of them are listed –
ULIP is a wise option. However, before you zero in on any ULIP plan, you must determine whether the insurer can offer adequate protection features in the occasion of any obligations or future threats. Moreover, the insurer makes an investment in the market on your behalf. Thus, before selecting a ULIP option, factor in the track record as well as customer testimonials of the insurer.
Choose the maximum assured amount option
A sum assured refers to a lumpsum amount provided to your i.e., policyholder’s nominee in the case you pass away during the validity period of ULIPs. When a ULIP plan is bought, the sum insured is even determined. You must choose the maximum amount covered because this sum would be used for supporting your near and dear ones post your passing. You may even consider using an online ULIP calculator to zero in on the suitable ULIP plan depending on your premium payment potential and your coverage requirement.
Keep a close watch on the fees and charges
The price of a ULIP plan differs based on the insurer. The listed are a few of the crucial expenditures linked with ULIPs.
∙ Fees of the premium allocations
∙ Administrative charges of the policy
∙ Fees for fund administration and riders