Unit-linked insurance plans (ULIPs) are a popular type of life insurance that combines investment and insurance policy components into one. They provide a unique opportunity to financially protect yourself and your loved ones and invest in various market-linked funds with growth potential.
In this blog, we will look at some of the lesser-known facts about a Unit Linked Insurance Policy that you should know.
Fact 1: ULIPs Tax benefits.
Best ULIP plans provide several tax advantages to investors. Premium payments for ULIPs are tax deductible up to a maximum of ₹1.5 lakhs under Section 80C of the Income Tax Act. Furthermore, the maturity or death benefits from ULIPs are tax-free under Section 10(10D) of the Income Tax Act, subject to prevailing tax guidelines.
As a result, ULIPs are a tax-efficient investment tool that can help you spare money and build wealth over time.
Fact No. 2: ULIPs Have Fees and Charges
While there are many benefits of ULIPs, it is important to note that they have hidden costs. These fees include premium allocation, insurance administration, store management, mortality, and surrender charges, premium allocation, policy administration, fund management, mortality, and surrender charges are examples of these fees.
In addition, these fees are deducted from your premium payments or investment funds, potentially reducing your returns. As a result, it is vital to understand the fees with ULIPs and select a plan that provides a low-cost structure.
Fact 3: Online ULIPs provide a variety of investment options.
One of the primary benefits of a Unit Linked Insurance Policy is that they supply varied investment options to meet the different needs of investors. You can choose from various funds with ULIPs, including equity funds (for high-risk investors), debt funds (for low-risk investors), and balanced funds (for medium-risk investors).
For instance, Tata AIA ULIP Plans provide around 11 different fund options for policyholders and allow you to switch between funds based on market conditions or dynamic investment objectives.
Thus, you can tailor your investment strategy and balance your risk appetite and potential return.
4th Fact: ULIPs Have Lock-in Periods
ULIPs have a 5-year mandatory lock-in period, which means you cannot withdraw your accumulated corpus before this time. This lock-in period ensures that investors remain sworn to their investment goals and do not withdraw funds prematurely.
However, some ULIP plans allow partial withdrawals or loans against the policy for mid-tenure corpus needs.
Fact 5: ULIPs Are an Excellent Long-Term Investment Option
ULIPs are a long-term investment tool with the potential for high ULIP returns. ULIPs are submitted to market fluctuations and unpredictability because they invest in equity and debt funds.
However, in the long run, ULIPs can outperform traditional investment options such as fixed deposits and guaranteed return plans. As a result, ULIPs are best suited for investors with a long investment funds horizon and the ability to withstand short-term commercialised fluctuations.
Conclusion
ULIPs benefits to investors include tax advantages, elastic investment options, and the potential for high returns. However, it is vital to understand certain features of ULIPs and ensure you choose a suitable plan with all the right information at hand.
Furthermore, ULIPs have a 5-year mandatory lock-in period and are best suited for investors with a long-term investment horizon. The Tata AIA ULIP plan is a well-known plan that provides comprehensive reportage and potential returns.
If you are looking for an investment tool that provides the benefits of insurance and investment, a ULIP may be a good choice. By considering these ULIP hidden facts, you can choose a plan that meets your investment funds goals and financial needs.
Before investing in any investment product, consult with an insurance advisor, and always consider the risks and potential rewards before making investment decisions.
