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Consider This Checklist before Buying a ULIP Plan Online

Consider This Checklist before Buying a ULIP Plan Online

Checklist for buying ULIP

Investing in a ULIP requires you to pay a fixed premium for the selected cover amount and while some portion of the paid premium is used for providing insurance coverage, the remaining portion is invested in a debt or equity instrument. When it comes to saving money and making financial decisions, it is normal human nature to gravitate towards products that have “more” benefits. This is where Unit Linked Insurance Plans (ULIPs) fit just right; they pack multiple benefits in a single investment and also ensure significant returns. ULIPs offer dual benefits of providing individuals with an insurance cover in addition to acting as an investment solution, helping them create wealth to meet their financial goals.

First things first, you should be fully conversant with how do ULIPs actually work. As an investor, you have the flexibility to choose between equity, debt and balanced fund option for your ULIP investment plan. Additionally, you can also choose to switch between investment plans during the course of the premium payment term. Fund managers assigned to your ULIP Plan are responsible for managing your investment according to the fund type and invest in debt or equity instruments. Also, it is important to note the facts that the lock-in period for ULIPs is 5 years and its performance or ability to generate returns is linked to the markets, as per the IRDAI.

Know Your Risk Appetite

In a ULIP investment setup, the policyholder has to bear the volatility of market risks. To be prepared, you need to start by knowing your risk appetite and determine your financial commitments before investing in a ULIP plan. Based on your risk appetite, you can choose an appropriate fund option ranging between low to high risk. The hostile side of fund options come with funds predominantly invested in equities, which improve your returns. On the other hand are lower risk fund options like market securities and debts to get steady returns. You also have fund options in-between, where 40-60% is invested in equities and the balance in Conservative fund options, for a medium risk return.

Understand Premium Payment Options

Different ULIPs may offer different kinds of premium payment options, most popular ones including limited premium payment and regular premium payment with the flexibility to pay in annual, half yearly, quarterly or monthly modes. You must select a payment type based on your financial niche. A limited premium payment option lets you choose a particular number of years, say 5 or 7, to pay your premiums. Or you can choose a regular payment option where you pay the amount through the entire policy term.

ULIP Plan Checklist

List down all ULIP Charges

An essential point to remember before investing in ULIP is the calculation of charges that come along with the policy. In its initial stage, ULIP plans often suffer from insufficient perception due to high charges paid in terms of allocation charges, switching charges, administration charges, surrender charges, etc. Accommodate these charges as a part of your expenses and see how comfortable you are with buying a ULIP plan. However, several policies like the Invest 4G by Canara HSBC OBC Life Insurance does not charge several charges like fund switching charges, along with a benefit of return of mortality charges.

Remember the Flexibility of Switching Funds

An investor’s risk appetite might change with time, therefore consider that you have bought a ULIP plan, you must utilize the feature of fund switching to aim for maximum possible returns. So, if your risk appetite increases considerably due to which you want to switch funds flexibly, this will keep your options open to investing in funds that are likely to get a higher return. Therefore, when you opt for a ULIP plan, note the number of free switches available, cost per switch and the variability of switches that the policy offers you.

Are You in For Long-Term Commitment?

A common misconception that exists around ULIPs is that investors must pay a premium amount for only a limited period of time, mostly 5 years, until the lock-in period, which is the reason why many investors choose to take a step back as soon as the lock-in period is over. ULIP plans, however, necessitate a long-term investment horizon to get the desired returns out of it. However, there are several reasons you should not surrender your ULIP policy after the lock-in period. If you surrender the policy beyond the lock-in period, you may end up losing more than invested as the charges cannot get averages in a short-term policy.

Growing your wealth is a priority in order to ensure a secure future for your family, and ULIP plans prove to be a powerful financial product for this purpose. Now that you have the checklist, be aware of the facts before you make an investment and choose your ULIP plan wisely.

Speak to an insurance specialist now!

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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