ULIPs (Unit Linked Insurance Plans) became popular at a time when mutual funds and stock market investments dominated people’s financial portfolios. ULIPs offer market-linked returns along with the advantages of life insurance coverage. Therefore, by investing in a ULIP Plan, you can access market-linked financial products while reaping the benefits of a life insurance policy. As a result, ULIPs have become one of the most sought-after investment options available today. However, if you are also looking to buy one, you must first master the essentials if you want the right ULIP Policy!
How can ULIPs Benefit You?
Unit Linked Insurance Plans have significant benefits due to their numerous features. Here are the main ULIP advantages that make them unique and crucial for your portfolio.
- Asset Allocation – You can take advantage of asset allocation through unit-linked insurance plans. Asset allocation refers to distributing your money among the many ULIP funds available as part of your insurance policy. You can allocate your ULIP funds between equity, debt, a combination of the two, or liquid funds. Doing so enables you to make market-linked investments in accordance with your level of risk tolerance and your financial objectives.
- Fund Switching – A ULIP policy allows the investor to switch between different funds as per market performance. This makes investing in ULIPs highly flexible. In addition, these switches are usually free of charge (up to a set number per year).
- Life Cover – Another advantage of ULIPs is their life cover. It is a unique market-linked investment product in this regard. With a ULIP, you have the prospect of long-term wealth creation and the financial security of a sum assured for your family in case something unfortunate happens to you.
- Tax Benefits of ULIPs – As they are a form of life insurance policy, ULIPs provide tax benefits under sections 80C and 10D or the Income tax act of 1961. The former makes premiums paid towards a ULIP policy exempt from taxation (up to ₹ 1.5 lacs), and the latter makes the death benefit tax-free. However, as per the latest tax regime, if the total premiums for the ULIPs (bought after 1st Feb 2021) exceed ₹2.5 lacs, the maturity benefits (long-term capital gains) will be taxable. Note that the death benefit is still tax-exempt.
How to choose the right one?
Select a ULIP with a larger number of fund choices –
First and foremost, a ULIP plan must offer a variety of market-linked fund options. Your ULIP performance will not produce the projected gains if there are just a limited number of market-linked funds accessible. To help you maximize your gains, a good ULIP provider should offer a complete selection of equity, debt, and money-market funds. In addition, you can choose between low-risk, medium-risk, or high-risk funds based on your level of risk tolerance.
Select a ULIP insurance strategy that is adaptable –
A ULIP plan ought to give you the flexibility to manage your investment portfolio and distribute your funds as you see fit. Additionally, you can move your premium payment from one fund or group of funds to another. If you wish to be a passive investor, you should also see if the company offers a fund management service for your ULIP so that you can leverage their expertise and maximize the returns.
Examine the ULIP Charges –
There are specific ULIP charges in India. These charges may vary depending on the product. Still, they are not allowed to go over the capped limit established by the Insurance Regulatory and Development Authority of India (IRDAI), so they do not significantly impact the returns in the long run.
Before allocating the units, the insurance firm deducts all applicable fees from the premium in accordance with their policies. The balance of the premium is divided among various asset classes of your choice, including debt, equity, or both. Therefore, one needs to be informed of the numerous charges their insurance company levies.
Examine the types of riders available –
Since ULIP plans offer life insurance protection, it’s crucial to confirm the scope of coverage. In addition to the sum insured under the base policy, riders (add-on benefits for critical illness, accidental death, etc.) may be provided with your ULIP plan in exchange for an additional rider premium to provide further financial support in the event of certain unforeseen situations. The riders offered may vary from one insurance provider to another, so make sure to conduct thorough research.
Buy the ULIP policy online –
Lastly, you might think about purchasing your ULIP policy online. The main advantage of obtaining insurance online is how quickly you can have your ULIP coverage at a lower cost due to the absence of an intermediary. In addition, going paperless from the comfort of your home is simple and allows you to upload soft copies of any documents online effortlessly. You can also utilize an online ULIP plan calculator to determine the returns and premiums of your desired plan.
Conclusion
Since you will be investing in a ULIP plan for the long term, it should be a carefully considered decision. It’s imperative to choose a product with the best potential for market-linked wealth creation and to take your time making the decision. Of course, prioritize your budget, but the ULIP plan’s advantages should also be kept in mind, and the policy be tailored to your needs and goals.
Another thing you should consider before investing in a ULIP is the reputation of your possible insurer in the market.