The Financial Express
Unit Linked Insurance Plans (ULIPs) are investment products in India that combine insurance and investment components. These schemes offer a combination of insurance and investment features to investors in India. You must also remember that ULIPs come with various charges and fees, including premium allocation charges, policy administration charges, fund management charges, mortality charges, and surrender charges. These charges can eat into your returns and reduce the value of your investment.
Here are key things you should know about ULIPs:
Market-linked returns: ULIPs invest your money in equity, debt, or a combination of both, providing market-linked returns. The returns may be volatile, and it’s important to understand the risks involved before investing.
Life insurance coverage: ULIPs provide life insurance coverage in addition to investment benefits. A portion of your premiums goes toward the insurance coverage, and the remaining amount is invested.
Lock-in periods: ULIPs have a minimum lock-in period of five years, during which you cannot withdraw your money. This helps promote long-term investment and can also provide tax benefits.
Charges and fees: ULIPs come with various charges and fees, including premium allocation charges, policy administration charges, fund management charges, mortality charges, and surrender charges. These charges can vary from policy to policy, and it’s important to understand them before investing.
Investment flexibility: ULIPs offer flexibility in terms of the amount and frequency of premiums, as well as the investment options. You can choose between equity, debt, or a combination of both, and switch between funds as per your investment goals.
Tax benefits: ULIPs offer tax benefits under Section 80C of the Income Tax Act, allowing you to claim a deduction on the premiums paid. The maturity proceeds are also tax-free under Section 10(10D) of the Act.
Loyalty additions: Some ULIPs offer loyalty additions, which are additional units or bonuses added to your policy for staying invested for a certain period.
Partial withdrawals: Some ULIPs allow you to make partial withdrawals after the lock-in period, which can be useful in case of emergencies or short-term financial goals.
Free period: ULIPs come with a free-look period of 15 to 30 days, during which you can cancel the policy and get a refund of the premiums paid, minus any charges.
Lock-in Period: ULIPs have a minimum lock-in period of five years, during which you cannot withdraw your money. This can be a disadvantage if you need liquidity in the short term.
Adhil Shetty, CEO, Bankbazaar.com, says, “Never mix investment and life insurance. Separate the two; get the best of both worlds – good coverage, better liquidity and higher returns. If you mix the two, you would get the worst-low coverage, poor liquidity and negative returns. Never go without term coverage when you have financial dependents. Buy a term plan and put your savings in PF or a tax-saving MF. Over the long term, this combination is likely to work better than investing through traditional insurance.”
ULIPs can be complex products, and it’s important to understand the terms and conditions, charges, and investment options before investing. It is recommended to consult a financial advisor before investing in ULIPs.
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