Features of Unit-Linked Insurance Plans (ULIPs) You Should Know
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Investment instruments called ULIPs provide you with the chance to create money while retaining the security of a life insurance policy. In ULIPs, a portion of your premium is allotted to your life insurance, and the remaining half is allotted to a fund, which is a collective pot of money. Then, this fund makes investments in debt, equity, or a mix of the two. The rewards on your investments are based on the success of the fund you select. To find out about the features of ULIPs, read on.
What Does ULIP mean in simple terms?
ULIPs are the types of insurance that guarantee both investment return and insurance coverage. Market-linked funds are used to hold the premiums paid for ULIPs. According to his risk tolerance, the policyholder may select any fund. After then, as the fund expands, the premiums invested rise and provide returns. ULIPs are also adaptable since they permit partial withdrawals during the plan's term. In addition, policyholders have the option of moving their investment funds and topping up their payments.
Why Investing In ULIPs Is A Good Idea?
ULIPs offer superior returns across a range of asset types than the majority of insurance products. To guarantee that the returns are favourable and positive, the policyholder can alternate between debt and equity depending on the performance of the fund. It is typically recommended for every earner to have an insurance policy with a cover sum equivalent to 10 years' worth of income. Because the life insurance offered by ULIPs is 10 times the amount of yearly premium payments, the insured is protected against market volatility. The insured benefits from perks like liquidity, transparency, returns, etc., which is to their advantage.
What Are Some Features Of ULIPs?
Following are the features of ULIPs -
- Investment Allocation - You can select investment avenues with ULIPs based on your level of risk tolerance. You can choose to invest aggressively in stocks, cautiously in debt funds, or a combination of both with balanced funds to obtain the best of both worlds. Additionally, you can choose to allocate your premiums to certain funds in the future.
- Shifting Funds - If your selected funds' performance falls short of your expectations or if market conditions change, you can alter or switch to another fund. By doing this, you can guarantee that your returns are balanced although when one sector of the market is underperforming. When compared to equities or mutual fund investments, this is one of the larger benefits of ULIPs. Volatility may be defeated. All of this is covered by the same contract and is accessible whenever necessary without any additional costs.
- Withdrawals - You can make portion withdrawals from your funds after the five-year lock-in term if necessary. The insurance providers set the maximum withdrawal amount and the number of withdrawals that are permitted.
- Top-Ups - Any funds left over after paying your base charge can be used to buy more units and boost sales. You can grow your investment with some ULIPs. This option, known as the top-up facility, allows you to add more money on top of the current policy. On top of that, you can get tax breaks for these top-ups.
What Are Some Factors That One Should Think Over Before Investing In ULIPs?
Following are Factors that an individual should think over before investing in ULIPs -
- Objective - You have to have a purpose in mind before purchasing a ULIP. Ideally, it should be a long-term objective because ULIPs offer larger returns over a longer time frame.
- Expenses - Choose a plan where you know you'll be able to pay the premiums on time. This will rely on your understanding of all the other monthly expenses you have.
- Inflation - You must consider inflation while selecting an insurance plan because future price increases for requirements are almost certain.
Endnotes
ULIPs will cover your family for the duration of the policy as well as offer favourable returns on investment when the policy matures.
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