ULIPs are investment plans that provide the benefit of life coverage along with the benefit of the investment. The premium paid on this policy can further be invested in the fund of your choice, debt funds or equity funds or both.
But ULIP plans should be chosen in a way so that they suffice to meet the financial goals. Below mentioned are the points that you need to keep in mind before choosing any ULIP plan.
Know Your Goals and Then Select the Plan– Before you zero in on any of the ULIP plans, it is necessary to know your goals and your risk appetite. With ULIPs, you can invest in equity funds, debt funds or a mixture of both. Investing in equity funds will help you with high growth potential while in case of debt funds would help you to grow your wealth. Your needs and your goals would help you determine whether to invest in Equity funds or in Debt funds.
Select the Right Amount of Life Cover- ULIP plans are designed to meet long term goals of an individual like a child’s education, marriage or any other dream goals. In addition to this, it also helps to provide financial cover to the dependents of the family in case of the demise of the policyholder. So, determining the amount of coverage that would be essential for having financial stability for your family is essential. Knowing this, one must select a cover that would be apt for the family.
Looking for Wealth Boosters or Loyalty Additions– ULIPs along with the insurance cover helps you meet your financial goals. In some policies, the insurer offers you bonuses in the way of Wealth boosters or loyalty additions if you stay invested for a longer period of time. Such offers from the insurance providers would further help in boosting your wealth and thereby achieving the financial goals in a better way.
Know the Charges Applicable for ULIPs – Before you choose any ULIP plan, you should be aware of the charges that come along with the ULIPs. There are essentially 5 charges that are applicable,
- Premium allocation charge
- Policy administration charge
- Mortality charge
- Fund management charge
In the case of long term, investment in ULIPs the charges eventually reduce. Also, the life insurer has the right to revise the charges over a period of time.
With ULIPs you can enjoy tax benefits at 4 different stages-
- In the first stage, that is the entry-stage you can enjoy the entry benefit. Here you can get tax benefits on the payment of the premium under section 80C, Section 80D and Section 80 CCC.
- The second stage is the earning benefit where you can get benefits on the money grown. Here the interest earned on the sum is not taxable.
- The third stage is the switching benefit where you can switch between equity find and debt funds without paying any taxes.
- The final stage is the exit benefit. Here the maturity amount is liable for tax exemption.
Also, there are other features which need to be seen before investing in ULIPs such as partial withdrawal facility, switching funds, the flexibility of adding Top-ups to the existing plan or redirecting your premium to funds of your choice.
The above pointers are a must to look for before choosing your ULIP plan and also it would be prudent to compare the plans online and choose one for yourself.