The dilemma between long-term financial protection and ambitions for achieving short-term financial growth is a pressing concern for many investors. Plus, investor preferences are gradually changing, and they want to monitor their investments. People want an insurance plan for financial protection while seeking reasonable channels for investment to achieve their financial goals.
You can find a flexible financial instrument in Unit-Linked Insurance Plans or ULIPs to enjoy the flexibility of investment alongside ensuring the advantages of life insurance.
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Explaining ULIPs
What is ULIP? A Unit-Linked Insurance Plan is a two-way life insurance product that includes the dual benefits of insurance alongside investment. ULIPs take regular premium payments and use a part of the premium to offer life insurance coverage. They allocate the remaining part of the premium to a pool of assets created with the deposits by other policyholders.
The plan provider invests the pool of assets in different financial instruments, just like how mutual funds work. One of the important highlights of a ULIP plan is the assurance of financial security in case of emergencies alongside an opportunity for wealth creation.
Which Factors Should You Consider for Choosing Unit-Linked Insurance Plans?
After understanding the basics of ULIPs, you should find the best policy from the multiple available options. You should invest in a plan only after a comprehensive evaluation and comparison of plans in India.
Here are some of the notable points you should keep in mind when buying Unit-Linked Insurance Plans:
- Evaluate your financial goals: ULIPs offer different fund options such as equity, debt, balanced and others. Choose a fund option that matches your investment goals and risk tolerance.
- Select the right coverage amount for life insurance: While ULIPs offer insurance coverage, it may not be sufficient. So, assess your insurance needs and calculate the required coverage costs before investing in ULIPs.
- Verify the charges: ULIPs come with various charges such as premium allocation charges, policy administration expenses, fund management fees, mortality charges and surrender expenses. These charges could affect your investment returns, so make sure you understand them upfront.
- Understand the lock-in period: ULIPs have a lock-in period of five years, which means you cannot withdraw your money before the end of the period. So, make sure you have a long-term investment horizon before investing in such policies.
- Research the performance of the fund: Before investing in a ULIP, it is important to research the performance of the fund offering the policy. This can be done by analyzing the fund’s past performance, the fund manager’s portfolio and investment ideas, and the fund’s asset allocation. It is also important to look at the expense ratio of the fund and any other charges associated with it, as these could affect your returns.
- Understand the policy details: Before investing in ULIPs, read the policy document carefully. Understand the terms and conditions, benefits, charges, exclusions and other details to make an informed decision.
Benefits of ULIP Plans
ULIP plan to provide an exclusive opportunity to diversify your investment portfolio and achieve long-term returns on investment. At the same time, it is also important to be careful of market fluctuations as your investments could be affected by volatile market conditions.
However, the advantages of ULIP plans encourage many investors to buy them. Here are some of the notable benefits of Unit-Linked Insurance Plans:
- Life Protection and Savings: Unit-Linked Insurance Plans offer life insurance coverage against unprecedented events. They also encourage a regular habit of savings, which ultimately leads to the creation of wealth for the future.
- Flexibility Benefits: The most important advantage of ULIPs is flexibility in achieving your financial goals. You can choose a new investment fund according to your changing needs or make partial withdrawals.
- Market Returns: ULIPs offer the benefit of wealth creation by adding a share of the invested premium in market-linked instruments such as equity and debt instruments.
- Tax Benefits: One of the most striking advantages of ULIP plans is the opportunity to avail of tax deductions according to the Income Tax Act of 1961. In addition, the maturity benefit obtained from the ULIP plan is exempt from taxes according to Section 10(10D) of the Income Tax Act.
Conclusion
The most important element in choosing a Unit-Linked Insurance Plan is research. You should not trust just any advertisement that pops up on your screen to make a major decision in your life.
Take a look at the details of the top ULIP plans available on the market and identify the specific parameters that align with your financial goals. For example, you could look for plans that offer higher insurance coverage amounts or higher returns for wealth creation.
You must also compare ULIP plans based on the costs involved and additional factors such as fund performance. Get more insights into Unit-Linked Insurance Plans with the help of financial experts today.