Unit Linked Insurance Plan, or ULIP as it is known, is an insurance plan that offers dual benefits and is a very good investment idea for those who do not understand investments in the financial market. This plan is ideal for people who do not know how to invest in the stock market. So what is a unit-linked insurance plan?
The ULIP is basically a plan which offers a life cover, like a life insurance plan, and also has an option to invest a part of the premium in the markets. This investing is done by the insurance company you have signed up for. They have professional people who deal with investments.
Now, before going in for a unit-linked insurance plan, there are certain important things which you must know. The first is the amount of premium you wish to pay. The insurance company will want to know what part of the premium you want to set aside for investments. This depends on your wish. Investments are of 2 types, the high risk, high gain type, or the low gain low risk one. You have to see which one suits your purpose. If you do not want to take risks or cannot afford them, it is best to go for the low-risk, low gain investments. This is generally equity-based. If you are able and willing to take a risk for high gains, then the insurance company will consider investing your money in debt instruments. These are high risk and high gain investments.
It is sometimes wise to have both in the portfolio. This means a portion allocated to low risk and low gain investments and some to the high risk and high gain investments. This allows for a more balanced approach. However, the decision would be yours, and the insurance company will invest accordingly. There is, however, the opportunity to make changes and move the funds around from high-risk investments to low-risk investments should you feel that it is what you want. Insurance companies allow this shift a number of times in a year, and there are no charges. After the fixed number of changes that the company allows for free, any change attracts a small charge. There is no need to worry about funds being locked into a kind of investment. You can make changes if you wish.
The main benefit of investing in a unit-linked insurance plan is that it offers a life cover. This is normally 10 times the amount of premium paid. This is an important aspect of the plan since it takes care of the risk of the sudden death of the person investing, preventing the investor’s family from facing a sudden financial crisis. Normal life insurance also offers this risk cover but does not allow for investment. The ULIP offers both.
Then there is the tax benefit under Section 80C of the Income Tax Act. Tax benefits are important, and a unit-linked insurance plan investment is tax-free. Consider that you have an investment option that offers a life cover, an investment option, and a tax relief component. This makes it a very good investment idea. Remember that your fund corpus grows fuelled by the investment portfolio that the insurance company has created for you with this investment. This portion will generate returns, and this is an addition to the premium value. But there is one due diligence which must be done before deciding which company’s insurance plan to take. Check the company’s performance in the last few years on its investment success. If the company has consistently done well, then that’s the company to go with.
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