Understanding ULIP Insurance: A Comprehensive Guide for Beginners

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder

As children, we always hear that we should save for the future. When you start earning, you put away some money to invest in your future. Understanding the ideal investment avenues can seem overwhelming in today's competitive market. Unit-Linked Insurance Plans (ULIPs) have become a popular investment tool for many hard-working individuals. Let's better understand ULIPs and how they can help you plan for the future.

What is a ULIP Plan?

A ULIP or Unit-Linked Insurance Plan is a hybrid financial product that provides investment benefits and life coverage. It allows policyholders to invest their money in various funds, such as equity, debt, or balanced funds, depending on their risk appetite. Additionally, these plans offer life coverage, protecting the policyholder's family's financial future. ULIP policies offer long-term investment options with a lock-in period of five years or more.

ULIP Meaning

ULIPs are insurance plans that combine investment opportunities and life insurance. A part of the premium you pay goes towards providing you with life insurance. The remaining gets invested in funds of your choice. You can select equity, debt or balanced funds based on your financial goals and risk appetite. The returns depend on market conditions, so these plans are called Unit-Linked Insurance Plans.

The government allows certain tax breaks on your ULIP Policy, meaning you can claim deductions against the premium amount. The returns you get at the end of the policy tenure are also tax-free.

Benefits of a ULIP Plan

ULIPs have become popular since they offer policyholders numerous benefits. Let's see how you can benefit from investing in a ULIP.

• Dual Benefits

  ULIPs offer a combination of investment and insurance benefits. The policyholder can invest their money in various funds while securing their family's financial future with life insurance.

• Flexibility

  ULIPs provide policyholders with flexibility when it comes to investing. Policyholders can choose the funds based on their risk appetite and future financial goals. Additionally, they can also select the level of insurance coverage required.

• Tax Benefits

  ULIPs fall under the EEE or exempt-exempt-exempt category. The amount invested enjoys deductions under Section 80C^# of the Income Tax Act, 1961. . Proceeds received on surrender/partial withdrawal/maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D) i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

  In addition to the above, for policies issued after 1st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.

  Rest policies exceeding the mentioned limit will be chargeable as capital gains.

  Death proceeds are also exempt from tax for all ULIP plans.

• Long-Term Investments

  ULIPs are ideal for long-term investment goals since they have a lock-in period of at least five years. It helps policyholders build a disciplined approach to investments and can build a significant corpus in the long run.

• Transparency

  Policyholders enjoy complete transparency concerning their investments in ULIPs. They can track each fund's performance and make switches as and when required to maximise their returns.

How to Choose a ULIP

Finding the ideal ULIP plan requires careful consideration. Before selecting a policy, you should evaluate the following:

• Your Investment Objectives

  Before selecting any investment policy, take the time to outline your investment goals. Consider the timeline and how much you would need. Your goals will help you choose the ideal funds for your needs.

• Your Risk Appetite

  Ask yourself how much risk you're willing to take. If you're risk-averse, you could consider investing heavily in debt funds. They provide slow but steady returns over time. You can consider investing in a few equity funds if you're open to some risks. They could offer high market-linked returns but may open you up to losses. Younger investors can often select more equity funds since they can stay invested for more time and correct course later. You should choose funds based on your personal risk appetite.

• ULIP Charges

  Every ULIP plan has additional premium allocation, policy administration and fund management charges. Before investing, ensure you evaluate and understand the additional costs. Certain insurance companies also levy a fund-switching charge.

• The Fund Performance

  Do your research before you invest. Check how the fund performed previously. ULIPs with a history of consistently good performance will likely offer better returns.

  ULIP plans are a good investment option for those who want to create wealth in the long term while also enjoying the benefits of an insurance policy. Before investing, ensure you understand how the ULIP works and all the associated charges. Choose a plan that suits your investment goals, risk appetite, and financial objectives. You may consult a financial advisor who can guide you through the investment process and help you make informed decisions. With careful planning and the right approach, ULIPs can help you build a secure financial future.

Related Article

• Complete Comparison of ULIP Plans
• ULIP Plan Charges You Must Know
• Why a Unit-Linked Plan is Must for Stable Fund Generation?

ARN - MC/05/23/1923