As a first time investor, it can be tough to put your finger on the right insurance policy. One reason for this could be the endless number of options available in the market and the second could be the lack of experience. Before you opt for a Unit-Linked Insurance Plan that seems beneficial, here are some tips that will help you choose the right ULIP policy.
6 Tips to Help Buy the Most Suitable ULIP Policy
1. Select ULIP Funds Based on Your Financial Goals
You must have specific financial goals planned for the upcoming 5 or 10 years. Based on it you expect a certain amount of returns to fulfil these plans. When investing In ULIPs, there are asset classes like equity, debt etc. that give a particular amount of profit depending on the market movement. Money invested in equity funds is held for long-term for high returns but is greatly affected by market volatility whereas debt funds fulfil short term goals and are safer as they are not market-linked. Thus, you can opt for either of the two to accomplish your financial goals and get good ULIP returns.
2. Invest in ULIPs for Long Term
Staying invested in the policy for the long term can give you handsome returns at the end of the term if the ULIP performance is lucrative. This amount can then be used to safeguard your loved ones financially in the future. Some insurance providers might also reward you with benefits for long-term investments.
3. Get an Appropriate Amount of Cover
Along with the investment component, ULIPs also present you a life cover which secures your family in your absence by providing financial assistance. This sum assured amount can be decided by you taking into consideration your family’s daily expenses, debts, investments, children’s education, etc. In case something was to happen to you, the cover should suffice your family and eliminate the requirement of dependency. Thus, they can carry on with financial stability due to the insurance policy.
4. Consider Tax Benefits
By investing in Unit-Linked Insurance Plan, you can enjoy tax benefits for the premiums paid and the maturity benefit. Under Section 80C of the Income Tax Act, you can claim the premiums paid to secure a policy with a cap of INR 1,50,000 per financial year. Also, the death and maturity benefit can be claimed for deductions under Section 10(10D). Some other benefits of ULIPs are that you get a certain number of free fund switches depending on your insurer and the interest earned on your investment is deemed tax-free.
But under the new tax regime announced in the Budget 2020, you cannot enjoy these income tax deductions and will need to opt for the old tax system to be able to claim tax benefits. Thus, these features are liable for changes in the future depending on the tax systems.
5. Know the Basic Features of ULIPs
ULIP policy has many features that sets it apart from other insurance plans like partial withdrawal, fund switches, etc. These features may change from one insurer to another like the number of free switches allowed per year. While comparing plans from various insurance providers, you can choose the insurer that provides the most benefits.
6. Understand Several Charges That Come with ULIP
For securing a life cover and an investment component in a ULIP policy, there are several charges and fees that you need to pay. Some of them are premium allocation charges, policy administration charges, fund management fees, mortality charges, partial withdrawal fee, premium redirection charges, etc. Though the cost may seem high, in the long term the overall charges reduce.
After understanding the Unit Linked Insurance Plan meaning and with the above tips, you can now buy the best ULIP Policy that suits your financial goals and provides an apt cover for your family.