10 things you should know about ULIP plans before investing in them

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Know about ULIP

Tejas and Prachi recently made their friends and families very happy when they announced their engagement. The couple met on their first day of college, five years ago, and are planning to get married in December 2020. They both work in Mumbai— Tejas is a digital marketing executive and Prachi is an HR representative. While imagining their future together, Tejas and Prachi agree that they want to raise children, travel abroad, and retire comfortably. To achieve these goals, the young couple consider taking a ULIP plan . Here are the top 10 things they need to know before investing:


1. ULIP plans have flexible investment options

A ULIP policy holder can choose to invest their premium in either equity options or debt or even a mixture of both, depending on their risk appetite. Someone who doesn’t mind high risk can choose ULIP investment options in equity funds while someone who is more cautious can invest in mutual funds. Want to know the difference between ULIP and Mutual Funds ?

2. ULIPs have a top-up option

In some cases, a policyholder can change the premium amount they’re putting into the ULIP plan and are not obligated to put a fixed amount each time. ULIP policies allow investors to “top up” or add extra funds to their existing investment amount.

3. Newer ULIP plans don’t have transaction charges

ULIP plans are a smart and secure first step into investing. However, older policies still come with a number of transaction charges related to premium allocation, mortality change, and fund management. Before investing, ensure that the policy is newer and eliminates these charges after a few years. For example, the Future Generali Easy Invest Online Plan starts with a 5% premium allocation charge that reduces to 2.5% after two to five years. After six years, the charge is fully eliminated. Know more about charges in ULIP .

4. ULIP plans are tax deductible under Section 80C

A ULIP policy is a tax deductible investment under Section 80C of the Income Tax Act 1961. This means that premiums of up to Rs 1 lakh are tax-free for the investor, making ULIP plans an attractive investor for first-timers. Even when the plan matures, the final amount is tax-deductible under Section 10 (10D) of the Income Tax Act 1961.

5. Lock-in period ensures discipline

A ULIP policy can come with lock-in periods of around five years, meaning that the investor must continue to add money into the policy for that time frame. The lock-in period encourages investors to save consistently and build their savings. After the lock-in period, investors can withdraw a part of their money if they want to or even discontinue the ULIP plan.

6. ULIP plans are strong long-term investments

Despite lock-in periods and transaction charges, ULIP policies are popular long-term investments. They require regular payments to remain active, teaching investors to be more disciplined while also increasing wealth. The lock-in period motivates investors to keep money in the market and ride out fluctuations with high returns, as well. A ULIP plan also allows investors to mix and match assets, making a diverse portfolio— Future Generali Future Opportunity Fund is one such plan.

7. Different premium payment options

ULIP policies are famous for their flexibility that also includes the payment structure. Investors have three different choices when it comes to paying premiums: single premium plan where the full investment is paid in a lump sum, regular premium plan where a fixed amount can be deposited for the duration of the ULIP policy, and limited premium plan where the amount is paid for a certain number of years.

8. A ULIP policy has the potential for high returns

One of the best parts of ULIP plans is that the return on investment can be potentially very high— even in double digits. When the premiums are invested smartly, in different types of assets and in tax-saving funds, the investor reaps huge benefits. A ULIP policy can be profitable, tax-savvy investment.

9. Maturity dates can be deferred

Some ULIP plans allow the investor to defer their maturity date, meaning that the date at which the policy matures and the money can be fully withdrawn is extended to the future. The main benefit of having a policy that allows the extension of the maturity date is that an investor can minimise risk in case the date falls in a market slump or decline. If the ULIP policy matures when the markets improve, the investor will see higher returns in the end.

10. ULIP policies help family planning

One of the most attractive aspects of a ULIP policy is that it offers insurance coverage and death benefits. So if the investor dies suddenly, their family can fall back on the ULIP and get financial security. ULIP plans are also good for family planning like retirement and children’s education, and any emergencies.

Conclusion

A ULIP plan has long been the go-to investment option, especially for young Indians in their 20s and 30s. They are not only simple to use and easy to understand but also have flexible options for risk and returns. Investors say that their ULIP policy helps them long-term by teaching them to save and be aware of their spending habits. The policy itself also generates steady returns, which is especially helpful for young people just starting out. Check out Future Generali Big Dreams Plan that allows you to build a huge corpus by investing just 2,000 per month.

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