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4 things to know before investing in ULIPs

By VIVEK JAIN
January 27, 2020 11:45 IST
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Investing in a Unit Linked Insurance Plan increases your life cover and also helps you save tax, says Vivek Jain, head-investments (Life Insurance) at Policybazaar.com.

Illustration: Dominic Xavier/Rediff.com

The Unit Linked Insurance Plan has evolved a lot since they were first introduced in India in 1971.

Today, 4G ULIPs which are available in the market have eradicated almost all pain points from the older version of ULIPs.

From being a reviled product due to their inflated cost structure and ambiguity, ULIPs are now being promoted as low cost vehicles for those to invest in market-linked products.

Apart from investing in market-linked funds, ULIPs primarily provide life cover ensuring a greater scope for the family of the insured. This means the family gets financial compensation in case of sudden death of the insured person.

Here are six advantages of investing in ULIPs:

1. Freedom to choose the premium amount and policy term

While many insurers pitch ULIPs only for high net worth, a lot of life insurance companies are companies are coming with products that comes with a minimum premium of Rs 12,000 per annum or Rs 1,000 per month, making it affordable for all, especially in the context of asset management.

These products let you choose the premium amount, as per your requirements and according to your risk-taking appetite.

Most of these products permit entry with lower premium on monthly mode along with 5 years of payment term and 5 years of stay period while it continues to live up to the benchmarks set by its feature-rich, innovative predecessors.

The advantageous 5-year lock in period helps investors to safeguard their investments from any intermittent market shocks.

2. Flexibility to choose between different life stage variants

Base Variant

Policy seekers have the option of choosing a plan as per their specific needs and requirements.

People looking for a plan that just covers their life (single individual) may choose to invest in a base plan that offers individual life cover.

As per the policy terms, on death of life assured, death benefit becomes payable and policy terminates.

Spouse Variant

In this variant, the life cover is available on joint life basis. The variant can be opted only if the policyholder is married whereby both the policyholder and his/her spouse are covered.

People who wish to cover themselves and their spouses can invest in the 'life partner' variant of the plan that offers life cover on joint life basis.

A prominent feature of the policy is that on death of either of the joint investor, death benefit becomes payable on the first basis and the policy terminates.

Child variant

As parents, we all want the best for our child. 

To achieve this, one should have a clear plan about how to provide for the same.

This is where the third variant becomes useful.

Unlike any other insurance plan, a child plan with 'Waiver of Premium (in-built)' rider is a unique solution because it even continues after the death of the policyholder. And the benefit doesn’t just stop here.

The insurance company keeps the plans active and continues to fund the policy by paying the remaining premiums and monthly income.

Thus the money keeps growing and is given to the nominee/ child on maturity.

This ensures child/nominee gets the required funds at the right age specified in the plan agreement.

In case of unfortunate demise of the policyholder, the policy shall continue and the child receives the policy benefits as planned.

3. Option to continue plan for 99 years with Whole Life option

People nowadays have clear goals to meet when they are turning 30 -- whether they are buying a house for themselves or planning for their retirement.

Whole life option is a plan that gives you the flexibility of choosing a policy term from 5 to 99 years.

These are investment linked insurance plans that offer both protection and investment benefit which takes care of your living benefits during your retirement.

You have the flexibility to enter into Whole Life ULIPs at any age between 18 to 100 years and can exit at any age.

You can also choose till what age you want to save money, or accumulate money.

The 5-year lock in period remains the same after which you can choose to take the corpus through a systematic withdrawal plan which will act as your income in the retirement age.

Partial withdrawal option is offered usually from the 10th year onward.

During the end of policy term, you can decide the percentage of fund value that will be withdrawn.

4. Tax benefits

Not all investment options provide tax benefits.

Since ULIP is a life insurance product it provides tax benefits.

For premiums paid, you get tax rebates under section 80C and all pay-outs received are exempt under section 10D of the Income Tax Act, 1961.

So you not only save money, but you also save taxes on the returns you get.

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