Life insurance plans are often available in multiple avatars. One of them is a unit linked insurance plan or what we know as a ULIP. The biggest advantages of these plans is how they combine insurance coverage with returns from investments. Here’s learning more about them below.
What are ULIPs and Their Key Aspects?
A unit linked insurance plan has a simple operating premise. The premium is invested in instruments tied to the market, such as debt, equities, or even balanced funds which are a mix of both these types.
Now, there are some deductions from the premium which take care of the life coverage for a particular amount across the policy duration.Thus, you not only get coverage for a particular duration, but also earn future returns. However, there are several basic aspects that should not go unnoticed while choosing a plan.
Let us look at a few ULIP features that you should know more about.
- Lock-in periods which are mostly five years. You cannot withdraw your money in this duration.
- Extension options for 7,10, or even 15 years and more for getting long-term benefits. Like many other market-linked investments, the longer you stay invested, the more you stand to gain in most cases.
- Choose the funds you wish to invest in and the allocation ratio. If you are younger and can take more risks, consider a bigger chunk of equity. Those who are older or nearing retirement can opt for a higher chunk of debt funds instead.
- Switching funds and changing investment allocation and ratio, based on market movements and changing goals. This does help in lowering your overall risks by a large extent. But there may be limitations such as a cap on the number of free switches.
- Professional management by experts to get you the best returns, although it has its own charges.
- Building sizable wealth with compounding to meet diverse needs like higher education, retirement planning, and more.
- Prefixed sum assured if the policyholder passes away within the tenure (or the fund value, whichever is more). You can thus be at peace regarding your family’s financial security in case something happens to you within the policy period.
- Tax deductions on premium under Section 80C and exemptions under 10 (10D) subject to specific conditions. What to Consider While Buying ULIPs
Before finalizing a unit linked insurance plan, it is important to keep these factors in mind.
- Policy administration, fund management, and additional charges.
- Premium payment frequency and choices. This usually includes monthly, half-yearly, quarterly, or annual payment options.
- Fund allocation ratio, investment theme, and fund types.
- Options for partial withdrawals, fund switching and investment tracking.
- Life insurance coverage amount.
- Risk tolerance levels.
Signing Off- ULIPs are Strategic Investment Choices
A unit linked insurance plan can not only help you build future wealth but also gain immensely from insurance coverage. But we recommend keeping the points mentioned in the post in mind, prior to investing.
