ULIP plans, which provide both investing and insurance benefits, can help people achieve their financial goals. However, prior to anything else, you must have a firm grasp of how ULIP plans operate. With your ULIP investment plan, you can choose to invest in equities, debt, or a balanced fund.
Here are seven things that you should consider before going for ULIP plans:
- Options for investing are flexible with ULIP programs.
Depending on their risk tolerance, ULIP policy holders can invest their premium either in equity options, debt, or even a combination of the two. While someone who is more careful can invest in mutual funds, someone who doesn’t mind significant risk can choose ULIP investing possibilities in equity funds.
- There is a top-up option for ULIPs.
In some circumstances, a policyholder is not required to consistently contribute a set amount of premium to the ULIP plan and is free to alter it. Investors with ULIP plans have the option to “top up” or add more money to their initial investment at any time.
- Transaction fees are not included in more recent ULIP plans.
A wise and safe way to start investing is through ULIP plans. However, there are still a variety of transaction fees associated with fund management, mortality modification, and premium allocation for older plans. Make sure the policy is more recent and eliminates these fees after a few years before investing. For instance, the premium allocation fee for the Future Generali Easy Invest Online Plan starts at 5% but drops to 2.5% after two to five years. Six years later, the charge is completely dropped. Learn more about ULIP fees.
- Section 80C allows for tax deductions for ULIP plans.
Under Section 80C of the Income Tax Act of 1961, an investment in a ULIP policy is tax deductible. This makes ULIP plans an appealing investment option for novice investors because premiums up to Rs 1 lakh are tax-free for the investor. According to Section 10 (10D) of the Income Tax Act of 1961, the final sum is tax-deductible even after the plan matures.
- Lock-in time guarantees discipline
A five-year lock-in period is common for ULIP policies, which means the investor must keep funding the insurance throughout that time. Investors are encouraged to save consistently and can increase their savings during the lock-in period. Investors have the option to quit their ULIP plan or withdraw a portion of their funds after the lock-in period if they so choose.
- There is potential for large returns with ULIP policies.
The fact that the return on investment for ULIP plans has the potential to be quite high—even in double digits—is one of their strongest features. The investor benefits greatly when the premiums are wisely invested in a variety of assets and tax-saving funds. A ULIP policy may be a wise and rewarding investment.
- Family planning is aided by ULIP policy.
The fact that ULIP policies provide insurance protection and death payouts is one of their most fascinating features. Therefore, if an investor passes away unexpectedly, their family can rely on the ULIP and receive financial stability. ULIP plans are also helpful for emergency planning, retirement planning, and planning for a child’s education.