Insurance is usually considered as a liability and in some cases, it is considered as an assurance of a secured future. As some insurance policies do not provide the expected returns, this has put insurance in a grey area for active investors. Therefore, considering the shift in investment paradigm all over the world, the insurance industry introduced ULIPs (Unit Linked Insurance Plans) for stock market investors.
What are ULIPs?
Even though ULIPs have been in the market for a long time, very few are aware of the product. ULIP is a combination of life insurance and market linked-investment. A small sum of premium paid by a policyholder is allocated towards insurance whereas the remaining amount is invested in equity fund, balanced fund, debt fund, or secured fund, depending on the investor’s risk appetite.
Many insurance providers offer ULIPs along with attractive schemes and low charges. However, these ULIPs with low charges might lack important factors, which can make you reconsider your investments later. Here are some vital points to look for within a low-cost ULIP plan:
Charges: When investing in a ULIP plan or any other type of insurance, you have to pay ULIP charges levied by the insurance provider. As these charges range from 1% of your premium amount, it is necessary that you check the amount of charges you are liable to pay to the company.
Funds switch: As time goes by, the risk appetite of the investor reduces owing to his or her financial goals. Many times, investors seek safe and risk-free investments and therefore decide to withdraw from their ULIP plans. However, to keep ULIPs risk averse, some insurance providers offer the fund switch perk that allows you to choose and change funds for uninterrupted income.
Types of Funds: The more options you have, the better choices you make. For a beneficial ULIP investment, you need to look for insurance providers which offer multiple investment sources. There are companies which cover investment instruments like equity, debt/ fixed income, money market and balanced funds.
Transparency: It is essential to keep track of your stock market investment without which your capital can be affected. Hence, you need to look for a company, which provides you with daily updates on your invested capital and where it is being invested. With periodic updates you can monitor your investment.
Tax Benefits: By paying a premium for an insurance policy you can avail tax benefits that can save you money in the long run. ULIPs offer dual tax benefits where the investor can avail tax benefits on investments as well as on withdrawals. Under Section 80C, premiums paid for ULIPs are eligible up to tax deductions worth Rs. 1.5 lakhs. In addition, the capital gained from ULIP is also tax exempted from income tax under Section 10/10D.
Death and maturity benefits: Since ULIPs and life insurance work similarly, their procedure to avail maturity or death benefit is also similar. In the case of ULIPs, you get maturity benefits if you survive the policy term with regular premium payments. To avail maturity benefits, you have to submit a discharge form along with basic documents. In case of an unfortunate death, the company gives the sum assured to the listed nominee. Some companies offer loyalty benefits or additional bonus during policy closure. Hence, it is important that you look for such perks to safeguard your investment.
Lock-in period: A lock-in period is a duration during which you cannot withdraw from the policy. These lock-in periods can create hurdles during an emergency, as early withdrawal can attract penalty charges. One must study the lock-in period of the ULIP plan or scheme that they choose to invest in.
If you have a disciplined investment plan, ULIPs can be very helpful to achieve short-term goals. To get the best results from ULIP investments, you can consider investing in Aegon Life’s iInvest or iMaximize plans. These plans have no premium allocation charges, thus increase the availability of more funds for investment. You can avail all these facilities with a onetime online payment.
Advt. no.: IA/Jul 2018/4167