What is ULIP (Unit Link Insurance Plan)?
Imagine having the benefits of mutual funds and life insurance merged into one. Does it seem impossible? It is not so in reality. There are such insurance plans, which are known as ULIPs or Unit Linked Insurance Plans. Unit Linked Insurance Plans (ULIP) product is a combination of investment plus insurance. The plans offer returns along with an insurance cover. The premium paid includes the relevant charges and is then invested in funds of your choice, with the right mix of debt, quiet and balanced funds. If you want to know more about ULIP plan, you should read on.
How does ULIPs Work?
The money pools from the investors are placed on the funds of their choosing. After the investment, the entire capital is divided into units and the investors are allocated units, much like the other mutual funds. When the value of the assets decreases or increases, the effect can be seen in the NAV. You would be able to withdraw partially by selling the corresponding amount of units. You should choose the ULIP insurance policy accordingly.
What are the Features of a ULIP?
Some of the benefits of UIP policy are liquidity, tax benefit, freedom to choose investment and insurance plan. Along with this, some of the important features of UIP policy are listed below.
1. Investment Allocation:
Some ULIPs allow investors to manage the invested corpus as well as future investments by transferring funds from one type to another. You can deal with these depending on your risk appetite.
One of the benefits of ULIP is that you can choose to switch from one fund type to another. This allows you to move funds as per the market. You can get an idea about how much you need to invest by knowing the insurance cover. You can take help from a ULIP calculator to do this.
ULIPs, however, have a lock-in period of 5 years, which was increased from 3 years in 2010. Since it is based on mutual funds, the benefits can be seen only in the long term. You should try the best ULIP plan for 10 to 15 years at least to understand if they would be of any worth to you.
Types of ULIP Policies:
Subject to the death benefits, there are comprehensively ULIP plans. First, under Type-I ULIP, the nominee one gets the higher of Sum Assured and Fund Value whereas secondly, under Type-II ULIPs, the nominee gets the Sum of Sum Assured and Fund Value in case of death of policy holder.
There are many varieties of ULIP plans based on investment goals of the financial specialist. Some ULIPs avoid any risk by putting capital in debt instruments whereas some invest capital absolutely in equity instruments while others are combination of debt and equity. These are the types of ULIP policies which investor can invest based on its risk taking capabilities.
Risk in ULIP Policies:
Since ULIP (Unit Linked Insurance Plan) returns are directly connected to market returns and market performance. All this investment risk is borne totally by the policy holder, one needs to completely understand the risk included. You should analyze your risk limit before choosing to invest in ULIP plans.
Why Should you Invest in ULIP Policy?
Life spread: First and premier, with ULIPs you take up some kind of hobby spread combined with speculation. It offers security that a citizen’s family can fall back on if there should be an occurrence of crises like the less than ideal passing of the citizen, and so on.
1. Financial Goal:
One of the best things about the plans is that they combine investment with life insurance benefits. If you have long haul objectives like purchasing a vehicle, marriage, house, and so on., at that point ULIP is one of the best investment alternative, as the net returns are comparatively more.
2. Income Tax Benefits:
On top of that, not many know that the premium paid towards a ULIP policies is qualified for an exempted from income taxes under Section 80C of the Income Tax Act. Also, the profits out of the mature policies are exempted from annual tax assessment of the Income-Tax Act. These ULIP policies have a double advantage that you can benefit from it.
3. Flexibility to Switch Portfolio:
ULIPs are typically structured products. The policies also allow the investors to switch the portfolio between the equity and debt-based funds to reap the maximum profits from the market. Insurance agencies, permit up to certain number of switches free of their customers.
When you analyze the past performance for ULIP plans, you will notice that returns obtain by ULIP policies are much higher than your bank saving or fixed deposit returns. Considering all of this, ULIP (Unit Link Insurance Plan) is an option that you must try out.