WHAT ARE ULIPS?
A Unit Linked insurance Plans or ULIPs are market linked investment instruments that are provided by insurance companies. Unlike other insurance policies ULIPs gives its investors a blend of both insurance and investment options integrated in a single plan. The life cover under ULIP may not be significantly big like the term plans but it does provide a life cover.
The premium you pay for ULIP is categorized into two parts. Part one goes towards your life coverage and part two goes towards your investment in debts or equity funds. There are various ULIP plans that are personalized to suit the investment objective, risk appetite and investment horizon of the policy seeker. Depending upon your risk appetite investment options in ULIPs include debts, balanced funds and equity funds.
Unlike other traditional insurance policies, ULIPs have a list of applicable charges that are subtracted from the payable premium, namely administration charges, allocation charges, mortality charges, surrender charges and withdrawal charges. Despite this its benefits outweigh them and make them negligible. ULIPs are an ideal investment option for people seeking Investment cum insurance. Let’s walk through 5 benefits that you must explore before buying ULIPs.
FREEDOM TO CHOOSE YOUR INVESTMENT PROPORTIONS
Depending on your risk appetite you have liberty to choose your investment mix. If you are a low risk taker and seek security over growth then you can opt to invest in debt funds. You can invest in balanced funds that are intermediate of debts and equity funds, if you are a moderate risk taker. Whereas if you happen to be an aggressive risk taker and experienced student of the share market you must look to invest in equity funds. Equity funds have provided up to 12-15%returns when market performs good.
Unlike other investment plans, depending on your market outlook and understanding, you have an option of switching funds without paying any expenses for a maximum of 12 switching per year. The times when market position is uncertain you can opt to invest in debt funds and as soon as market starts to perform well you can switch to equity funds. ULIPs also provide a facility to increase your portfolios via top-ups to capitalize on opportunities accounting to change in external environment.
Not many investment options provide tax benefits but since ULIP comes under life insurance products it is eligible for tax exemptions. Under the section 80C of IT act 2000, you can avail a max tax exemption of rupees 1.5 lakhs provided your annual premium is at least 10 times the sum assured of the Insurance.
LIFE COVERAGE BENEFITS
As covered ULIP is a product of life insurance companies. ULIP helps you achieve your life security and financial growth goals. Though ULIP provided life insurance is not as huge as the individual term plans but it does offer a life coverage which proves very important later in life. So now you can secure and grow at the same time.
ACHIEVING YOUR LONG TERM GOALS
Identify your long term financial goals like buying a car, house or property. Calculate the estimated amount required to fulfil them taking inflation into account. Since ULIP is market-linked insurance product and hence is ideal for meeting long term goals. Money invested in ULIPs grows faster than depositing it in saving accounts in banks because of the power of compounding. You can create way more money in ULIPs than other deposits for a greater time duration. But the key to long term investment is not switching between funds too often when a change in market price is below 500 points.