Things To Consider Before Investing In ULIP

Investing in ULIP for long-term v/s short-term

Unit linked insurance policy (ULIPs) are the plans are short term investments with a lot of flexibility. After the intervention of SEBI, ULIPs have undergone a lot of structural changes and changes in charges. ULIPs also have it’s own tax benefits other than the benefits of insurance and investment.

Let us check out the few factors that we need to consider before investing in ULIP plans.

Flexibility of investing in Markets:

Individuals can choose to invest in markets according to their risk appetite. Those who expect higher returns can invest in high risk assets like equity while those with a lower risk appetite can choose to invest in debt funds. Although one can also choose to invest partially in both equity and debt funds.

Top-up Option of ULIPs:

Investors can also choose the top-up option where they are not obligated to just pay the premium amount but can also pay a top-up. In fact the investors can put a varied amount every time and not pay a fixed amount.

No Transaction Charges On Newer ULIP plans:

Older ULIP plans have different charges such as premium allocation, fund management charges etc. Before you invest in ULIP plans make sure there are no transaction charges and remaining charges gets eliminated after few years. For instance, some ULIP plans starts with a lower premium allocation charge that reduces after 2-5 years.

Ulip Plans Have Tax Benefits:

Investors also find ULIP plans attractive due to its tax benefits. Under Section 80C the premiums paid against ULIP plans are tax-free upto 1.5 lakhs. After the plan expires the maturity amount is also tax-free under Section 10(10D) of the Income Tax Act.

ULIP Plans Have lock-in period:

ULIP plans have lock-in period of 5 years which induces investment discipline as investors cannot withdraw any fund before 5 years and need to keep investing. Investors can withdraw funds after 5 years.

ULIPs are long-term Investments:

ULIPs are considered to be long term investment plans irrespective to they have 5 year lock-in period. One can choose to keep the plans invested for a longer duration beyond 5 years and reap higher returns. With a regular investment, the investor becomes more disciplined and can choose between funds according to the risk appetite.

Different Payment Options Of Premium:

ULIP policies have flexibility in choosing payment options. You can either pay in lump sum and pay in single premium or choose in regular premium where a fixed deposit is paid for a duration of the policy period or choose to pay under limited premium plan where the amount is paid until a few years.

High Return potential in ULIPs

ULIPs have the potential to generate high returns in future. If the returns are invested in avenues that generate high returns, a person can also earn returns in double digit in the long run. Thus, ULIPs are a profitable and tax-savvy investment.

Can Choose a Deferred Maturity Date

With the ULIP plans you can easily extend the maturity date. This helps you minimize the risks if your maturity date falls during the market slump or decline period.

Other than the other factors ULIP plans also help in family planning as it offers coverage at the time of the insured’s death. The financial status of the family is safeguarded even after the death of the breadwinner.