Understand All The Basic Points About ULIP Policy Before Finalizing It With The Provider

Making good financial decisions is key to having your future secure when it comes to money. Having said that, all of us look at savings and investments with wary eyes since understanding what works for you comes with a little bit of research and studying different trends and investment plans. With the emerging trends in financial sectors, there are quite a few types of investments and savings plans in the market, and you might be confused with all the options available.

One such investment plan is the ULIP policy.

What is a ULIP?

ULIP stands for Unit-linked Insurance plan. Various insurance companies and banks offer an investment cum saving plan. It is, in essence, an amalgamation of insurance and investment, making it a two-pronged fork.

How does a ULIP work?

The basic working principle of the ULIP policy is that the premium paid by the policyholder is divided into insurance and investment. A certain part of the premium is reserved for the insurance part of the policy, and the other part goes towards investments in equity and other debt instruments that work like mutual funds. The policyholder has complete freedom to choose and personalize their investment options depending on their budget, their needs and the risk they are willing to take. Very much like mutual funds, the policyholder can track and trace their investment growths and returns as frequently as they like.

Here are some basic points about ULIP that you need to understand before you make your decision-

• The ULIP scheme gives you life cover — a certain amount goes towards mortality charges that will give you life cover and secure your family’s financial situation after your death or in case of untimely death as well.
• The other half goes towards investment through equity bonds and debt instruments that will provide you returns on your money.
• They have certain tax benefits under the Income Tax Act 1961- at different phases of your ULIP policy, you will be able to avail of tax benefits.
• They are long term plans, and generally, the lock-in period is 5 years. You should be aware of the duration of the policy and be prepared to make the same kind of financial commitment before investing.

A few pros and cons of the ULIP policy are-

Pros-

• They help you plan your insurance and investment with one integrated policy making it more manageable, hassle-free. They are easier to track and trace since everything is in one place.
• They help you save and invest in a systematic and disciplined manner.
• There are certain tax benefits on ULIP policies.
• Your investment returns will be more than a regular savings account or even a fixed deposit account.
• They are super flexible and cater to all types of financial budgets. They help you navigate your financial goals and help you achieve them.
• The policyholder can regulate their investment plans and switch between different funds during their policy’s term. They also have the option of surrendering their policy if need be.

Cons-

• Like all market-related investment plans, the risk in plan returns is directly linked to the market and loss, if any, will be borne by the policyholder. Hence ULIP investments should be done according to your appetite for risk and your ability to study the market trends.
• Some additional charges may be levied from the premium because of the added benefits it provides, like- premium allocation charges, fund switching charges, policy administration charges etc.

ULIP policies are a great way to kill two birds with one stone. They work really well as an insurance plan as well as a way to save and invest your money. Like with all investment and insurance plans — the earlier you start with it- you will have a more relaxed premium and more time to receive returns on your investment. It is a great way to secure your finances and take care of your family after your demise while simultaneously achieving your financial goals while you are alive.