If you’re planning to make a financial investment, you may be presented with the option of investing in a unit-linked plan. How does it work? ULIPs are not purely insurance policies or investment plans; rather they are a combination of both. We can provide a more detailed and organized definition of ULIP as follows: It combines life insurance with investments in which a small portion of the premium pays for the life insurance. But what about the remaining percentage?
Similar to a mutual fund, the insurance company that offers such plans pools the premiums it collects and invests them in varying proportions in debt and equity securities. This way, you get the protection as well as the growth that ULIP offers. Moreover, you can achieve your goals in terms of finances. What about the other half of the plan? Are ULIP holders allowed to participate in investment decisions? Absolutely! The investment mix can be customized based on your risk tolerance and investment needs.
ULIP Insurance: How do they work?
ULIPs are both insurance policies and investments. If the policyholder passes away while the ULIP is in effect, the nominee will receive a death benefit. The policyholder may also receive the maturity value of the ULIP if he/she stays with the policy for the term. This is the amount generated from ULIP investment in equity or debt. These returns are typically generated through ULIP funds and asset classes that are chosen by the policyholder. A ULIP is essentially an investment vehicle.
Which ULIP Insurance plan is best for you?
It is very easy to pick the best-suited ULIP policy once you understand what it is, as there are many options available. To choose the best ULIP plan available in India, you should compare and evaluate before investing in one. Consider these key points when selecting the right ULIP plan:
- Assess your goals;
- Keep your investment’s long-term;
- Choose the correct amount of Insurance Coverage plan;
- Obtain tax benefits.
PERKS of ULIP Insurance plans
ULIPs can also benefit you in other ways. These benefits include securing your future and helping meet your family’s financial needs, as well as helping you reap rich dividends. Check out some of the key advantages offered by ULIPs.
- It’s a basic benefits people expect from life insurance policies. The life insurance covered by ULIPs is usually higher than the value of your investment (fund value), unlike mutual funds. As a result, your family is financially stable and secure and is capable of reaching its goals.
- Are you interested in switching your money between debt and equity funds? With a ULIP, you have the option of switching. There is an upper limit to the number of switches you can use. If you exceed that number, additional charges will apply. In most cases, you can make several free switches each year.
- It is important to note that you can benefit from the tax exemptions offered by ULIPs. ULIP premiums can be deducted up to Rs. 1,50,000 against your taxable income under Section 80C of the Income Tax Act, 1961. According to Section 10(10D) of the Income Tax Act of 1961, maturity benefits from ULIPs are tax-free.
- If you want to add a single premium item, you can do so. You can make additional investments (above and beyond your regular premium) whenever desired. It is subject to some conditions nonetheless, and each insurance company has its terms and conditions.
- You can always use the partial withdrawal facility provided by Unit Linked Insurance Policies to pay for immediate expenses, such as your child’s 10th, 12th, or graduation fees. You are usually not charged a fee for partial withdrawals. Consult your insurer, however.
Unit Linked Investment Plans are similar to mutual funds in terms of their investment options. Investors’ investments are pooled in ULIPs and then allocated to different fund options depending on their preferences. Fund managers manage ULIP assets to meet specific investment objectives. As an investor, you are free to invest across multiple market-linked ULIP funds or buy shares in one strategy. In the end, evaluate all the plans using the above criteria and then choose the ULIP that best suits your financial goals.