What to know about ULIPs before investing in them?
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Unit Linked Insurance Plan or ULIPs is a financial product that takes the best of both insurance and investment. Depending on the choice of your investment (equity, debt, or mixed), you’re allocated units. These units have a net asset value (NAV) that is calculated on an everyday basis. Since these units are linked to the market, their NAV increases or decreases accordingly. As a thumb rule, to reduce your risk, you can diversify your ULIP investments, so the average NAV increases in the long run.
How do ULIPs Work?
Similar to any financial product, you would be required to pay a small amount of your choice, broadly known as premiums to keep your policy valid. The premiums you pay are allocated to different funds according to the ratio chosen by you. After the premium you pay is allocated to your chosen fund, units are assigned as per your contribution. These units are calculated based on net asset value or NAV.
Post allocation, the insurance provider levies some charges. These charges are not deducted from the fund. That is, they are levied separately and the fund amount remains unchanged. However, as an investor, you would be wise to be aware of the charges being levied by ULIP providers. Key charges levied by the insurers are as given below:
- Mortality charges
- Policy administration charges
- Fund management charges
- Fund switch charges
A few of these charges may be deducted monthly while others are deducted quarterly. After knowing your charges, it would be prudent of you to look into how the fund has been managed. Generally, in ULIPs, your fund is managed by a highly qualified and able fund manager.
What Are The Benefits Of Investing In Ulips?
Major players in the industry tend to offer the best ULIPs, offering several advantages to the average investor. With an influx of young investors in the market along with increasing awareness of the available benefits, ULIPs are quickly becoming one of the preferred choices of investment. Given are a few reasons why people are choosing to buy the best ULIP offered by financial institutes:
1. Dual Advantages Of Investment & Insurance
ULIPs are the only investment option in the market that provides its investors with both the benefits of investment and insurance combined. The insurance portion covers you in the case of unforeseen events. In case you outlive your plan, you receive maturity benefits. Additionally, your loved ones receive death benefits in case of death.
In addition to this, ULIP also allows your investment to grow. However, just like any investment, achieving a sizeable corpus would need to be viewed from a long-term horizon.
2. Freedom To Choose Your Investment Type
As an investor, you get to choose between equity funds, debt funds, or a mix of both called balanced funds. Given the varying risk appetite of investors, you get to choose your investment based on your financial goals and aspirations.
For example, if your goal aligns with taking on risk while being open to reaping the rewards, you may choose to opt for an equity fund. Similarly, to achieve steady returns on investments, you may opt for debt funds.
3. Tax Benefits
The best ULIPs offer tax benefits to their investors. Since the premiums paid in these plans are tax-deductible as per section 80c of the Income Tax Act, you can deduct premiums paid during each financial year from your total income thereby reducing the tax liability. In addition to this, the death benefits from the ULIP scheme are also tax-exempt.
What Are The Steps You Can Follow To Purchase Ulips?
Before you buy a ULIP product you must understand the insurance and investment benefits offered by the product. ULIPs can be easily bought online in a hassle-free manner. Given below are simple steps on how to purchase ULIPs.
- Visit the official website of the financial institution offering the ULIP.
- Explore the multiple ULIP products listed on the website and choose the one that aligns with your financial goals and risk appetite.
- Select the duration of the policy and the premium payment amount that suits you and your family the best.
- Proceed to the payments section.
- Select the mode of payment. Options such as net banking, online wallets, and other methods may be used.
- Enjoy the benefits of your Unit Linked Insurance Plan post payment.
- Investment in any entity be it in stocks, mutual funds, fixed deposits, and so on is a matter of personal choice. This personal choice is driven by your financial aspirations and targets. Hence if ULIPs fit your requirement, you would be wise to invest in a plan that best suits your needs.
