Have you been considering making an investment that ensures both life insurance coverage for protecting your family financially and also to earn returns to meet future goals? You can check out ULIPs or unit-linked insurance plans. But knowing what the ULIP plan is essential for this purpose. Here are some insights that will help.
What Is ULIP Plan- Key Things to Know
If you want to define a ULIP plan, it can be called a combination of insurance coverage and investments. You get adequate life insurance coverage throughout the tenure of the plan, while there are options to choose equity, debt, or even hybrid funds to earn future returns. It is possible to select funds as per your risk tolerance levels and also your future goals. ULIPs also come with professional fund management to help you earn better returns and manage risks better, while you can also switch funds periodically to keep your portfolio on track, replace under-performing funds, or respond to market movements. However, most insurers allow only a limited number of free fund switches per year, beyond which additional charges may apply.
In case of your demise within the policy period, the insurance company will pay the sum assured and/or the fund value, depending on the policy terms. Some ULIPs pay the higher of the two, while others provide both. Otherwise, you will earn market-linked returns until the maturity period. You can stay invested for 10-15 years to ride out temporary fluctuations or volatility, while aiming for competitive returns that may help counter inflation. These may be used to meet future objectives, including buying a house, paying for the higher education of children, and so on.
There is also a minimum lock-in period of 5 years, after which you can make partial withdrawals, subject to conditions set by the insurer. You can also get tax benefits on the premium payments as per Section 80C, provided the annual premium does not exceed 10% of the sum assured. Additionally, ULIPs issued on or after 1st February 2021 with annual premiums exceeding ₹2.5 lakh are subject to capital gains tax upon maturity, as per the latest regulations.
Is a ULIP Right for You?
Does the ULIP seem right for you? It can be, considering that you require a strategic combination of both life insurance coverage and investments. However, make sure that the coverage aligns with your goals in terms of financially securing your family. ULIPs are primarily investment-oriented products with an insurance component, so they should not be relied upon as the primary life insurance option. The coverage amount is usually lower than that of term insurance and other dedicated life coverage policies. However, if you’re looking for an additional investment-linked cover, while exploring return-earning avenues, then ULIPs make for a viable choice.
Make sure you choose your funds strategically and go for ULIPs only if you’re willing to wait it out until you get your returns. So, those with a long-term horizon and desire to compound money and build a corpus should opt for these plans. Also, you should be okay with varying risk levels (despite fund switching and professional management) arising from both equity (higher risks) and debt funds (slightly lower risks). If all of these factors fall in place, ensure that you purchase your ULIP right away. Make sure you compare insurance companies thoroughly and review their plans and benefits before making a final decision. As you assess your options, exploring ULIP offerings from trusted insurers like SBI Life Insurance can give your financial portfolio the strategic boost you’re aiming for.
