New to ULIP? Things you Should Know
ULIP or Unit Linked Insurance Plan is a combination of investment and insurance that packers multiple benefits in a single investment. In simple terms, ULIP is a type of life insurance policy that provides life cover as well as helps policyholders create wealth by investing a percentage of the premium in equity assets or debt. By investing in a unit linked insurance plan, you get the desired life cover and invest for your financial goals. Earlier, the insurance market was ruled by the straightforward term and endowment plans. However, with the industry getting broad, it is providing customers with more options in the form of UPLIs.
If you are new to ULIPs and don’t know what it is, here is what you need to know.
#1 USP of ULIP
As said, ULIP is quite different from your standard life insurance policy. It is a blend of insurance and investment in a single plan. Unit linked insurance plans allow you to invest in capital markets according to your risk profile, via its numerous fund options.
The advantages of ULIP include
- Gives you a range of investment options
- The option of systematic investment
- It provides you with tax benefits under Section 80C
- Acts as an insurance cover
All in all, it is a complete package that can help you grow your wealth.
#2 How does it work?
A unit linked insurance plan is designed in such a way that it works on building wealth and meeting the insurance needs. During the initial years, as you pay premiums, a large part of your premium goes towards the policy expenses. After deducting these expenses, the premium is distributed between making an investment and providing a life cover. Based on the amount you invest; you will be allocated with units in a fund of your choice. The fund can be anything from debt, equity, or a combination of both. However, you need to understand that the performance of the fund you choose depends on the underlying market condition. It may remain low for the initial years.
#3 Tax benefits of ULIP
Under Section 80C, the premiums on your unit linked insurance plan are eligible for tax benefits, where a deduction of up to INR 1 lac from your taxable income is permitted. On the other hand, in case if you die, the nominee you have assigned will receive the amount totally tax-free. Moreover, under Section 10 (10D), the maturity of ULIP is categorized as a payout. That means the entire amount is tax-free.
#4 Costs involved in ULIP
When buying ULIP, there will be certain expenses involved. They include:
- Administration charges, which are deducted on a monthly basis
- Premium allocation charges, which is deducted from your premium in order to meet the costs relating to distribution and marketing
- Mortality charges, which is considered as a fee towards providing life insurance policy
- Fund management charges, which you will have to pay for the management of your investment
ULIP is a quality insurance cum investment option if you are looking to generate wealth while being insured.