Being a worthy investment option, Unit Linked Insurance Plan [ULIP] has gained mass popularity after the Long Term Capital Gains [LTCG] tax reforms. Due to LTCG reforms, ULIPs have not only become affordable but also allow tax benefits which, in turn, helps the investors to save more money. Ever since then, a majority of investors are scurrying around to invest in a ULIP Plan.
Whether you’ve already purchased a ULIP or you’re going to purchase one soon, understanding ‘what is ULIP plan?’ and its important facts are equally important. Policies. Take a look at these few things mentioned below before the purchase of a policy:
List of things to keep in mind about ULIP Plans:
Learn the working process
The working of the ULIPs typically depends on the functioning of the premiums. When you initially purchase a ULIP plan, a major chunk of the premium is spent towards the expenses of the policies. Once it is deducted from all the required expenses, the premium is further distributed into the sum assured and the investment. Later, the units are allocated for the invested amount into funds based on your choice.
Consider your risk appetite
Investment in ULIPs means keeping your risk appetite in mind. For instance, if you’re an aggressive investor and can bear high risks, invest in equity funds. While investors above 30 years can invest in balanced funds, those above 50 years can invest in debt funds due to low-risk involvement. Therefore, understand your risk appetite and make an investment in ULIPs accordingly. Besides, an investor can also switch the funds in case you’re not satisfied with the returns received on the investment.
Understand ULIP charges
Investment in ULIPs involves multiple expenses in order to suit the needs of policyholders. Hence, understand the ULIP charges thoroughly before making an investment in a ULIP. Take a look at the charges mentioned below which are applicable on ULIPs
- Fund management charges
- Mortality charges
- Premium allocation charges
- Policy administration charges
Opt for a long term investment
Since the equity markets are volatile in nature, it is important to stay invested for a longer run in order to gain higher returns after the market bounces back. Keeping the volatility of the market in mind, ULIPs are particularly crafted for a longer duration. Therefore, look for a 10 years investment goal and stay invested in the plan until the maturity period. Moreover, you can gain maximum benefits if you stay locked for an extended period.
Choose the right coverage
Since ULIPs offer dual benefits of protection and growth, it is easier to choose an adequate amount of coverage suitable for you and your family. This coverage is, however, decided based on the payments of the premium. The coverage or the sum assured that you decide will be provided to the nominee, at the time of your death. Therefore, it is advisable to wisely select the coverage as it safeguards your family in your absence.
Know the tax benefits
An allowance on tax benefits has attracted a vast number of investors. Under a ULIP plan, the premiums paid towards the policy are eligible for a tax deduction of Rs. 1.5 Lakh on the taxable income according to the Section 80C of Income Tax Act, 1961. Additionally, the maturity amount received by the nominee on the death of the policyholder is absolutely tax-free.
Now that you all the vital information about investment in a ULIP policy, trust us, your investment in a ULIP will be worth all your hard earned money. Since a ULIP is a dual product for investment and insurance, it safeguards the interests of your families as well as your interests in the equity markets. With its higher returns and tax benefits, you can achieve your financial goals with ease.