Which ULIP policy should I buy?
Unit Linked Insurance Plan (ULIP) is an investment vehiclerunning on the wheels of dual benefits of investment in the capital markets along with insurance cover. A good ULIP not only provides well covered insurance policy but will also give you superior returns depending on the fund that you invest in. It's a combination that very few instruments can offer.
While unit-linked insurance plans are still new to get accustomed to the Indian market, many consumers are eager and anxious to know about this investment vehicle such as how do you know if ULIP works for you, and if it does, which type is suited to your needs?
The articles will guide you through the answers that hinder your minds and what factors are considered to get a suitable one pertaining to your needs.
There are two broad categories of ULIPs, which are defined by the death benefits they offer. Type 1 ULIP provides benefits that are higher of the cover or the accumulated fund value. While Type 2 ULIP offers death benefits that include both the cover and the accumulated fund value. It is important that you review these two products in terms of death benefits and mortality charges associated with the policies. So, here are some factors that which will help you understand if ULIP works for you and which is suitable for your needs.
Do you get tax benefits in this policy? The answer is “YES” ULIP gives tax deduction benefits. Under Section 80C, the premium paid is eligible for deduction, provided the cover is at least five times the annual premium. However, we recommend that tax advantages should not be the only reason for investing in ULIPs, nor should the investment amount be decided on the basis of deduction available under Section 80C.
Always see that the cover and projected maturity value are sufficient to meet your specific need. You should also make sure that you’re able to pay the entire premium. Many ULIPs offer flexibility in the amount of risk cover as a multiple of the premium that you can afford. Check with your relevant policy provider and choose the flexi-payments options at your convenience.
They offer a combination of benefits with a charge structure that optimizes a bundled offer. After the capping of charges, the new ULIPs are competitive compared with any combination of products, such as term insurance and a savings product. Additionally, tax incentives at the time of investment and on maturity are an important consideration. So compare policies with kinds of bundled offers, tax incentives etc. and then choose a suitable one meeting your requirements.
The minimum lock-in period for ULIP is five years and many offer policy terms of up to 30 years. This is a good feature as early withdrawals can deplete investments resources intended to meet a particular need. You should be prepared to invest for the full term;many plans have loaded benefits that reward the investors for staying with the policy till maturity. If you are unable to continue paying the premiums or require a full withdrawal, you can surrender the policy. If this is done after five years, no charges are deducted and the full fund value is paid. However, if a policy is ended before the completion of five years, surrender charges are deducted.
Most ULIPS have a variety of fund options ranging from aggressive equity, diversified equity and balanced funds to bonds or income funds and short-term funds. Choose the ones that suit your investment capability and risk profile. Set your targets keeping in mind your future needs, reservations for unexpected problems and the inflation rates.
Most new ULIPs have in-built features that provide for liquidity in case of unforeseen circumstances. These include loans of up to 40% of fund value and partial withdrawals. They also offer the flexibility to switch between funds depending on your changing needs. Investing in a ULIP is a long-term commitment and it's essential to compare products. If it suits your specific financial goals, go ahead and buy one.
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