Smart Investors Guide to ULIPs

Smart Investors guide to ULIPsSmart Investors Guide to ULIPs


Investments are subject to market risks, and every investor wishes to reduce these risks. Be it through debt fund investments or opting for balanced funds, investors often seek instruments that are risk-averse, even though they offer lower returns. That said, the variety and versatility of investment products make it hard for investors to choose. Lately, many experts believe that ULIP plans have emerged as a popular investment tool that offers a combined benefit of higher returns and life cover. This article would help and act as a Smart Investors Guide to ULIPs.

Also Read: Best Health Insurance Plan for Family

What are ULIPs?


If you are already aware, skip this section.

Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that, unlike a pure insurance policy, gives investors both insurance and investment under a single integrated plan. In simple terms, ULIP is insurance+Investment plan.

ULIPs are widely considered to be the most versatile and innovative product of the insurance sector, so much so that they have become ‘the’ choice of smart investors. Adding to its benefits, ULIPs also provide investors with options to switch between funds, thus, allowing them to diversify their investment portfolio. However, to reap the benefits from ULIPs, you need to understand the dynamics of the market. By treading smartly on investments and making the right choices of fund allocation you can get good returns with low risks.

Therefore, before buying a ULIP plan, you must use ULIP returns calculators, to determine the amount of returns specific plan can offer (*however, returns may vary according to market conditions). The information can also be used to compare policies and narrow down the options.

Now that you know how to choose the perfect ULIP plan for you, it’s time to learn why choosing ULIP is the way forward for smart investors in this volatile market.

1) Switching to Be Safe of The Volatile Market


The fund switching option in ULIP plans is a convenient method to protect your investments from the fluctuations of the market. It also allows you to maximise returns by creating a perfect balance between debt and equity funds.

For instance, if you think there will be a rise in the market, you can easily switch funds to equity and grasp the benefits of the volatility. Similarly, when a milestone in your life approaches where the finances will be required, you can change funds that provide you security. By doing this, you can make sure that you have the right amount of corpus at the time of requirement.

Moreover, if you are not up to date with the market fluctuations or are short on time, you can opt for an asset allocation option. In this option, a fund manager will switch your funds after proper consideration of market scenario on your behalf. In ULIP plans you get a certain number of free switches in a policy year.

2) Top-Up Option


ULIPs enable you to invest extra cash through periodic investments, in the form of top-up premiums. The top-up amount is paid over the amount of sum decided on the purchase of the policy. Moreover, this top-up is also eligible for tax deductions under the Section(s) 80C and 10(10D) of the Income Tax Act, in case the premium paid is less than 10 percent of the sum assured.

3) Partial Withdrawal


Unit linked insurance plans offer more liquidity as compared to its counterparts. The partial withdrawal facility is one such example. It is designed to meet the immediate financial needs of the policyholder without affecting the tenure of the policy.

The policyholder is eligible for partial withdrawal after the lock-in period, and the withdrawal is entirely tax-free. Moreover, leading insurers like Future Generali offer four free partial withdrawals in each policy year.

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4) Surrender Option and Lock-In Period


Unlike some investment options, ULIPs provide you with an opportunity of surrendering the policy before the completion of its lock-in tenure of 5 years. However, the policyholder does not get the fund value on the date of surrendering. After the insured surrenders the policy, the insurer will levy specific discontinuance charges.

The remaining amount will then be transferred to the DP fund or the discontinuance policy fund. The policyholder’s money, then remains in the DP fund until the lock-in period gets completed. In case, the insured wishes to discontinue the policy after the completion of the lock-in period there will be no discontinuous charge.

Concluding: In a nutshell, ULIP is a product that can bridge the gap between your current finances and life goals. You can not only avail high returns on your investments but also ensure that your families’ financial future is secure, all under a single plan. Therefore, you need to carefully consider your current financial situation as well as goals and choose a policy that can help secure them even in the face of an eventuality.

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Team – Myinvestmentideas

Smart Investors Guide to ULIPs

One comment

  • Jay Mehta

    ULIPs come with a lock-in of five years which can help you inculcate a habit of disciplined investing. Since ULIP is a long-term insurance contract, investing in a single ULIP helps. Unlike ELSS, the policy is bought once while the tax benefit can be availed every year till the end of premium paying term. Thanks for sharing.

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