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6 Tips to Buy the Best ULIP in India

dateKnowledge Centre Team dateApril 29, 2021 views291 Views
6 Tips to Buy the Best ULIP in India

ULIPs or unit-linked insurance plans are life insurance plans specially crafted to help you meet your long-term financial goals. One of the major differences that ULIP has over other investments is that along with all the investment growth it can ensure the achievement of your goal despite the natural contingencies.

Thus, if you have important financial goals for your family, which you must achieve, such as a child’s higher education, ULIPs could be the best options to use. But there are hundreds of ULIPs in the market. So, how do you choose the best of them?

Here are six simple tips you can follow to buy the best ULIP for your financial goal:

Tip 1: Choose Fund Options as per Goals

There are major four types of funds namely equity, debt, balanced, and liquid funds available in ULIPs in India. You can choose anyone or two, or a mix of them as per your need for safety and growth of the invested capital. An equity fund can maximise the growth of your investment if allocated for a longer period, but the risk is also high.

Read to find out whether the risk involved in ULIPs the same as equity shares.

Whereas debt fund provides stable growth to the investment albeit at a slower rate. Before allocation in a fund, you can check at least 5 years of performance to have a past view.

A balanced fund is a mix of equity and debt funds to balance the return as well as risks. The experienced fund managers prefer equity fund for 5 to 10 years for maximum growth and thereafter in debt or liquid funds to secure the asset.



However, investors are allowed a maximum number of times to switch from one fund to another during the policy term from the beginning to last. It is given to grow and save the asset/premium invested in the best ULIP in India.

ULIP plans in India serve the objectives of both investment and life cover under one policy. ULIP plan products are designed to meet your long-term financial goals, for example, children’s marriage and higher education, family tour, etc.

But ULIP also provides financial cover to the family and dependents of the policyholder if he/she will be no more during the policy term. This life cover, however, is not just for taking care of the basic financial needs of the family-like, like kitchen expenses and loan repayments.

This life cover ensures that your family can achieve the goal you set out to meet in the first place. For example, Invest 4G ULIP plan from Canara HSBC Oriental Bank of Commerce Life Insurance continues to invest in the plan until all the due premiums are paid after the death of the policyholder. Thus, while the family receives a sum assured amount upon your death, the investment also continues. They will receive the maturity value you intended and meet their financial goal ultimately.

Therefore, choosing the correct life cover in ULIP plans is important. Also, this life cover amount will decide the maximum amount you can invest in a ULIP every year, without losing your tax benefits.

Your annual ULIP investment should not exceed 10% of the life cover amount to stay tax-exempt. Plus, if you have bought a ULIP plan after 1st Feb 2021, your maximum tax-free ULIP investment can be Rs. 2.5 lakhs in a year.

Tip 3: Treat ULIP as a Long-term Investment

One of the objectives of investing in ULIP is wealth creation. It helps policyholders in creating wealth to fulfil the goals of family members like higher education and marriage of children, etc. Life cover is to ensure that such important goals do not suffer from a disastrous mishap in your life.

Thus, while equity investment is a tool for long-term wealth, ULIPs offer other perks to long-term investors. If investors stay for the long term then insurance companies also offer Wealth Boosters Bonuses and Loyalty Additions for maximum growth of assets.

Learn how to plan your long-term financial goals with ULIP.

Tip 4: Understand ULIP Charges

Unit linked insurance plans or ULIPs are allowed to apply the following charges on the investment:

  • Premium allocation charge
  • Policy administration charge
  • Fund switching charge
  • Partial withdrawal charge
  • Fund management charge
  • Mortality charge

The best ULIP plans in India, including Invest 4G plan, apply minimal charges. For example, Invest 4G plan only applies the Fund Management Charge and Mortality Charge on your investment.

The Fund Management Charge or FMC is capped at 1.35% of the annual fund value in the case of equity funds. It is even lower for debt funds.

The mortality charge is deducted during the premium paying term and it grows lower as your corpus value grows. It becomes zero once your ULIP corpus grows equal to or more than the Sum Assured.

Policies like Invest 4G can also return the mortality charge at maturity if you have selected the option.

Tip 5: Know the Tax Benefits of ULIPs

Your investment into ULIP plans is eligible for tax deduction under section 80C and the maturity amount is tax-exempt under section 10(10D). As per the section 80C limit, up to Rs. 1.5 lakhs is deductible in a financial year and is deducted from the investor’s taxable income.

Section 10(10D) allows for the maturity amount to be exempted from Income Tax. You need to take care of the following conditions to ensure a tax-free maturity value from ULIPs.

  • Your annual investment into any ULIP plan should not exceed 10% of the life cover amount in them
  • If you have bought ULIPs on or after 1st Feb 2021, the capital gains from such ULIP policies will be taxable if you pay more than Rs. 2.5 Lakhs as premium in any policy year.

Tip 6: Consider Features of The ULIP Plan

ULIP plans have a single role to play in your financial life, ‘to help your family achieve their important goal, regardless of your presence.’ In this role, protection is a single and settled aspect. However, when it’s about investment management and growth, you have a lot to gain with the right features:

(i) Multiple fund options: Option to invest in selected ratios into both equity and debt funds

(ii) Automatic portfolio management strategies: Very important if you are investing in equity funds. These strategies help you manage the risk of your portfolio without your continuous involvement.

(iii) Goal protection option: Protect your goal while you are there for your family and when you are not. This option allows the investment portfolio and investments to continue even after your early death. The family will receive the maturity value at the end of the policy term as you originally intended.

Also, your family receives the life insurance sum assured immediately upon your demise during the policy tenure.

Read what is sum assured in ULIPs.

(iv) Bonus Additions: Plans like Invest 4G from Canara HSBC Oriental Bank of Commerce Life Insurance, offer bonus units if you stay invested for a longer period. Thus, boosting your portfolio growth.

Thus, the best ULIP plans in India can offer better growth to your investment and protection to your family’s aspirations. If you can select the best ULIP plans with relevant features and benefits, you can invest stress-free for the future of your family.

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FAQs

In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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