All About Unit Linked Insurance Plans (ULIPs)

When you invest in ULIP, a part of the premium is invested in different market instruments such as debt and equity in varying proportions. The balance amount is used in providing an insurance cover. There are fund managers who manage the investments and thus investors are ‘spared the hassle’ of tracking their investments.

Benefits of Unit Linked Insurance Plans (ULIPs)

The following are some of the benefits of ULIPs:

1. It offers dual benefits of savings and insurance at market-linked returns. Therefore, you can invest money to earn higher returns and at the same time take care of your protection needs

2. Under Section 80C of the Income Tax Act, 1961, the premium paid is eligible for a tax deduction. The returns of the policy on maturity are exempt from income tax under Section 10(10D) of the Income-tax Act, 1961

3. ULIPS allows you to switch your portfolio between equity and debt based on your knowledge of the market’s performance and your risk appetite. 

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Types of Unit Linked Insurance Plans (ULIPs)

Discussed below are the different types of Unit-Linked Life Insurance Plans:

Equity Funds

These ULIPs invest mainly in high-risk stocks and equities of companies. They are the riskiest ULIP investment but offer the highest returns.

Cash Funds

Funds are invested primarily in money market funds, bank and cash deposits, and other money market instruments that have low risk.

Income, Fixed-Interest, and Bond Funds

Funds are invested in government securities, corporate bonds, and fixed-income securities, which offer a medium risk and medium returns.

Balanced Funds

These ULIPs invest in different financial instruments, as such, the risk is effectually spread out across high-risk investments (corporate stock/equity investments) and low-risk investments (fixed-interest instruments).

Factors to be Considered Before Investing in ULIPs

Investing in ULIPs will need utmost attention. To ensure this, the following factors must be considered

• Charges that will be levied for entry/exit of the policy
• Analyse the ULIPs performance to understand the highs and lows
• Compare and evaluate each plan based on premium payments, cost structure, flexibility, risk profile,
• investment strategies, returns, among others

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Also Read:- Types of ULIPs

Conclusion

ULIPs are a good choice since it offers the benefits of investing in different funds with an opportunity of multiplied growth while providing a protective cover. Hence, investments in ULIPs can be customised to your preferences; you can choose the funds based on your appetite for risk.