If you have ever been to any agent for advice related to buying an insurance product, they must have suggested you investing in ULIP at some point in time. What is ULIP? Unit Linked Insurance Plan (ULIP) is a product that is offered by insurance companies, which provides the benefits of insurance along with the returns on investment. Apart from providing life protection and market-linked growth, it also gives you tax benefit under Section 80C of the Income Tax Act.
ULIP achieves the purpose of savings, insurance and tax benefits. As far as taxes are concerned, along with tax benefits under Section 80C it also provides tax deduction levied on the nominee in case of the policy holder’s death. Are you wondering how does ULIPs manage to give market-linked growth benefit along with life protection? Like any other insurance product, you must pay premiums in ULIP, and a part of that premium is invested in the money market. You have the flexibility to choose the funds in which you want to invest; based on your risk appetite and financial goals. You can invest in either debt funds or equity funds.
There are various types of funds to choose from like balanced, equity, growth, income funds, etc. Insurance companies offer different product structures to relate to the investor’s needs. As an investor, there are a few points that you need to pay attention to while planning to invest in a good ULIP.
Identify your requirements – There could be various reasons for which you plan to invest in ULIPs. From retirement planning to health issues and child education, it can be any reason for which you plan to invest in Unit Linked Insurance Plan. ULIPs offer various options to invest in equity funds from 0 to 100 per cent. If you have a long-term goal, we suggest you go for an equity-based plan.
Risk appetite – Not everyone willing to enter the stock market is a risk player. Some people like to play at minimum risk, for example, if you are planning to invest in ULIP for retirement planning, go for a structure that invests the entire amount in debt funds.
Balanced plan – There are various structures of ULIPs available in the market that let you invest in different funds and switch funds from time to time. If you wish to stay between high-risk plan and low-risk plan, choose your funds accordingly.
Semi-controlled switching – Not everyone knows how to select funds for better profit. Also, many first-time investors are entering the stock market by investing in ULIP. Hence for such people, it is suggested to opt the semi-controlled switching option. This option switches the funds automatically as per the instructions stated by the policyholder. You can even select for monthly switching of funds with this option.
Insurance should be a secondary purpose – ULIP comes with benefits of both life cover and market-linked growth. Although the protection provided in ULIP is not enough, hence if insurance is your sole purpose of investing in ULIP, then reconsider your thought. If your goal is long term like retirement or funding child’s education, then ULIP insurance makes the best choice.
ULIPs are structured in a way that gives maximum returns on long-term investment. Therefore, plan your investment accordingly
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