ULIP or Unit Linked Insurance Plan, (also called wealth insurance plans) is a package of financial solutions that comprise the safety of insurance with wealth enhancement possibilities. In a ULIP, a section is reserved for life cover and the rest is invested in bonds and stocks as funds. This investment is based on the performance of the underlying fund that is preferred by the investor. ULIPs with its two in one alignment keeps the savings and protection elements distinguishes. ULIPs are very transparent and versatile, which enables the investor to modify the plans as per the need and unlike other plans once invested, the plan remains unalterable.
Types of ULIPs include children’s education, retirement, wealth and health plans. Depending on the priority, ULIP investment can be done. Best ULIPs are the ones which have the accurate life cover, fund option, and a long-term investment. In ULIP, insurance plans, the charges applicable, are well bifurcated. The charges of ULIP usually comprise policy administration charges, ULIP premium allocation charges, fund management charges and mortality charges. Premium allocation charges are deducted from the premium account that the investor pays and is used for the cost of underwriting and distributor’s fees and medical fees. The policy administration charges are deducted on a monthly basis. The amount that remains is invested in the fund that is selected by the investor.
Benefits of ULIPs
One can invest a fixed amount monthly, quarterly, annually or also semi – annually. The amount saved in the ULIP plan is invested at the applicable (NAV) Net Asset Value and denote in units. Every month a certain amount goes towards charges like the fund management or premium allocation charge and so on. We usually invest to get good returns, ULIP provides good returns. We can make a huge profit if the market does well and if we have invested in those stocks. ULIP provides mortality charges as the cost of life insurance cover. This will be imposed either by unit cancellation or by debiting the premium but not both. The charges are collected at the beginning of every policy month. The computation method will be explicitly specified in the policy document. ULIP investment offers flexibility, wherein the holder can shift from one to another depending on how the market works. Helping one gain more returns on their investment.
You can top – up your investments periodically with ULIPs. They offer tax benefits on top – ups too. You can invest it by using the top – up facility offered by ULIPs in you have extra cash. You can also get tax benefits of the premium paid in this case is below ten percent of the sum assured.
Tax Saving Benefits in ULIP
ULIPs investments qualified for deduction under section 80c of the income tax act. ULIP maturity proceeds are also tax-free U/S 10(10D). So, ULIPs have an EEE tax advantage.
It also allows the investor to invest in equity as well as debt funds. ULIP gives you the liberty to transfer money from one fund to another. This is highly beneficial if you have changed your financial goals and therefore want to shift from one to another investment option and that too without impacting your taxes. There is no capital gain taxation in ULIPs even if you switch from equity to debt or vice-versa. You can thus, plan your taxes with ULIPs in advance.
ULIP is best suited for the ones who want to invest in a long run, as the share market is not for someone who doesn’t want wish to play for a short time period. ULIP investors can choose from a range of sub-options or plans offered by the company and the policy term can be anywhere between 3 to 60 years. Various types of bonuses are declared during the term and on the maturity of the policy that either increase the additional units or fund value added to the policy. You can also opt for a single premium or regular premium plans.
In case of death of the investor, the company pays out the fund value or the cover (sum assured) or both, depending on the type of plan chosen. You can also partially withdraw your money from ULIPs. ULIP offers this facility whereby you are allowed to withdraw your cash after a lock-in period of five years and they are tax-free.
Choosing the best ULIP rates is very easy provided specific criteria are considered before investing. Understand the ULIP charges, plan by comparing various products by different companies on Coverfox.com and then choose the best ULIP that suits the need will work well. In today’s times the comparison is simple and thus, no plan must be bought without comparison.