Unit Linked Insurance Plan enables policyholders to get market returns along with insurance cover. A ULIP Insurance provides an investor with different types of funds. Take a look below:
Debt fund – Where you can invest your money in debt instruments that bear moderate risk
Equity fund – Where you can invest your money in equities for high risk and potentially higher returns.
ULIPs are the type of plans that offer protection as well as market-linked returns. The nominee gets either the sum assured or the fund value, depending on underlying conditions. Before you go for a ULIP plan, the investor must study the plan very carefully as well as its past fund performance. There are a few little known facts about these plans, in which the investor must take note of to gain good ULIP returns.
Below given are five such facts:
1. Fund switching facility
There is an option given to the policyholder, wherein he can switch his funds from one option to another based on his risk appetite. These switches may be done if you send a request to the company offline or online. Online switching is generally cheap or free, up to a limited number of switches (depending on the terms and conditions of the particular plan).
2. Stretching the maturity date
Some ULIP policies allow investors to stretch or extend the maturity date. As you know, the day your policy matures, you receive either the Sum Assured or the overall fund value, whichever is higher. As ULIP is a market-linked product, the overall fund value tends to be higher than the Sum Assured amount. As the overall fund value depends on the NAV on the date of maturity, you might want to wait out in case you feel that even higher returns are on the horizon. Therefore, you must opt for a ULIP policy that allows you to stretch the maturity date.
3. The amount receivable on death
The investors generally have the option where they can choose how they would like to receive the Sum Assured of their ULIP policies. Consider the family needs and select sum assured value accordingly. Typically, the amount payable on death is higher of the sum assured or fund value or both (depending on the type of ULIP you opt for). Therefore, choose a high sum assured to get reasonably high death cover.
4. Choosing proper sum assured to avail tax benefits
Under Section 80C, ULIP policies are eligible for a tax deduction on premiums, whereas under Section 10 (10D), the maturity and death claims are tax-free, only if the sum assured is ten times the annual premium. For availing the tax benefits, the investor must not opt for a sum assured that is less than ten times the annual premium.
5. Reduction in units
The expenses required to run a ULIP plan are charged by reducing the equivalent number of units from the portfolio of the policyholder under different heads like,
Premium allocation charge
Fund management charge
Policy administration charge
Mortality charge
Partial withdrawal charge
Switching charge, premium redirection
Discontinuance charge
Miscellaneous charges, etc.
It is therefore very important for a prospective investor to inquire about the number and quantum of charges before they choose a plan because excessive ULIP charges impact the returns adversely. Managing the policy carefully to avoid attracting unnecessary charges for maximizing the gain is also advisable.
Your prime objective while buying a ULIP should be to have a satisfactory life insurance cover to protect your family from unexpected events. Awareness is the first step towards making effective decisions. Investing in ULIP is a perfect combination of high returns, life cover and tax savings.
