Key Things to Know While Investing in ULIP Plan
A ULIP plan, or a Unit Linked Insurance Plan, is a newer way for investors to diversify their portfolios today. In a ULIP, investors get to link insurance plans in a structure that acts similar to a mutual fund.
Most ULIPs are offered in India. They’re used for benefits such as life insurance, education planning, and retirement offerings. The investor opens the ULIP and the premiums are then paid into on a regular basis. To find the best life insurance policy in India, you have to know what you’re looking for.
ULIP products provide life insurance coverage, investment benefits, tax reduction options, making them in demand investment plans. If you’re planning on investing in a ULIP, keep these key factors in mind.
What You Need to Know to Invest in a ULIP
1. Your risk can vary with a ULIP
ULIPs range from conservative to aggressive, so knowing your risk appetite is crucial before you jump into your investment. The more aggressive investments come with higher potential gains, but more risk. Conservative plans offer lower returns with less risk, and then hybrid plans lay somewhere in between.
2. ULIP plans are flexible for the investor
Your assets are determined through a calculation that assesses the daily net asset value. This is linked with the market.
While you pay a premium towards your investment annually, semi-annually, or monthly, this premium is invested as you designate. It can be adjusted and transferred flexibly.
3. You will have to deal with charges
In a ULIP plan, just like with other investments, there are administrative aspects that are required. Most ULIP investments have fund management charges, administrative fees, and charges that are levied if you switch or surrender your investment.
4. There are limitations and exclusions.
ULIPS offer protection from unexpected tragedies, but they are also created to be investments for long-term goals. Some of these plans may exclude or limit what you are trying to accomplish with your investment.
Check out the performance of current insurance companies like Canara HSBC OBC Life Insurance to find reputable plans that have acceptable limitations and exclusions.
5. The gains in a ULIP are tax-free
According to Section 10(10d), income and gains in a ULIP are tax-free, with specific terms, unlike mutual fund gains, equity funds, and debt funds. To qualify for this tax-free category, though, a ULIP’s cover must be ten times the annual premium. If it’s more than that when it matures, the full amount is treated as income.
6. Watch when you surrender your policy
The tax benefits are great, but only if you keep the ULIP for at least five years. If you surrender your policy before then, the tax deductions you avoided during that time are added to your income the year you discontinue your policy.
A ULIP Plan Can be a Wise Investment
With these factors in mind when you look to invest in a ULIP, you can choose wisely and make a sound investment. There’s a reason why these plans are in high demand in India - when they are done right, they are a smart way to diversify your portfolio and invest your money.
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