When you are planning your long-term investments and securities, it is important to research them thoroughly before investing in them. Whether it is securing your life with insurance or seeking long-term investments that offer high returns, Unit Linked Insurance Plan (ULIP) does both. What is a ULIP policy? ULIP is a life insurance product with an investment aspect. The premiums that you pay for your policy are partly used towards providing you with a life cover and partly invested in the funds of your choice. If you are planning to buy a ULIP, here are some things to keep in mind before investing:
- It offers wealth generation in the long haul
Most investors prefer to put their money in a ULIP for the long haul. With the compounding returns, they can easily achieve their long-term financial goals. Making recurring investments inculcates the disciplined approach, which in the long term, leads to enough investments. Also, with a ULIP, you can switch your fund allocation anytime you want, to make the most of the market fluctuation.
- It comes with a lock-in period
ULIPs are a two-in-one product that provides life insurance and investment. They come with a lock-in period of 5 years. In that lock-in period, the policyholder cannot make any withdrawals. After that period, they can avail funds anytime they want. This makes them a perfect emergency fund to have.
- Newer plans have eliminated their charges
When ULIPs were initially launched, they had several charges associated with them. Older policies have several transaction charges associated with them as mortality charges, premium allocation, fund management charges, and operational charges. When you are looking to invest in a ULIP, ensure that you buy an updated plan where these charges have been eliminated.
- It provides investment options based on risk-appetite
The investment component of your ULIP policy allows you to choose your fund allocation based on your risk appetite. There are several types of ULIPs to choose from accordingly. If you are looking for a low-risk appetite, you can invest in debt funds. If you can take risks, you can invest in equity funds of your choice. There are also balanced funds available, where you can invest partly in debt funds and partly in equity funds. Also, the plan allows you to switch your fund allocation from debt to equity and vice versa, anytime you want.
- It offers tax benefits on multiple levels
When you buy a ULIP, you will receive tax benefits on multiple levels. The premiums you pay for your plan are exempt from taxes under Section 80C of the Income Tax Act. In case of your demise within the policy tenure, the nominee will receive maturity benefits. The sum assured received by your nominee is also exempt from taxes. Also, the maturity amount that you receive when your ULIP matures is exempt from taxes, subject to certain conditions. It is important to check the current tax structures before investing in a plan.
- Pay premiums according to your comfort
Depending upon the stage of your life and your goals, you will choose one plan from the different types of ULIP. You can choose a regular premium plan where you pay monthly or yearly instalments towards your ULIP. The other option is to choose a single premium plan where you can make a lump-sum payment. There are also limited premium plans where you need to pay premiums only for a certain number of years. The amount of premium for such plans is then decided according to the number of years you will pay premiums.
- Offers top-up options
In different stages of life, you will have different income and investment habits. When your income grows, you can choose top-up options in ULIPs, where you can put extra money into your investment. This ensures that the amount of your investment has increased along with its returns. A policyholder may change the amount of premium that they are putting in their plan. There is no obligation to have a fixed amount for every premium.
Once you are aware of the different aspects of ULIPs, you can make an informed decision accordingly. They offer high returns in the long haul, which enables you to achieve your goals in the long term. Along with it, the life insurance aspect ensures that your loved ones are secure in your absence.