Your One-stop Guide to ULIP Basics

Your One-stop Guide to ULIP Basics

Unit-Linked Insurance Plans (ULIPs) have earned popularity over the years by offering the dual benefits of life insurance and investment. In ULIPs, the insurers invest part of your premiums in equity, debt, or a mixture of funds to generate profit. 

Before purchasing a ULIP, it is essential that you understand how the policy works, its features, and if it is the ideal product for you. Read on to know more. 

How ULIPs work

Now that you understand what is ULIP, it is time to learn the functioning of this investment instrument. You already know that ULIPs invest in equity and debt funds. What makes it even more profitable is that only professional fund managers handle your investments. It eliminates any need for you to worry about your money. You have the option to inform the insurer about how much risk you are willing to take and what kind of returns you are expecting. The fund managers invest your money accordingly. 

You also have the choice to switch among equity and debt funds as per your changing needs. This facility gives you more control over the investment.

What is ULIP Net Asset Value (NAV)?

When you are investing in a ULIP, you are essentially purchasing units with the additional advantage of having a life cover. To calculate the ULIP NAV, the value of all units is computed daily, from which the insurer deducts its charges. Later, this result gets divided by the aggregate number of units. That is how you get to know about your ULIP NAV. 

This value shows your fund is faring compared to your initial investment, allowing you to keep an eye on its performance.  

Features of ULIPs

ULIPs have many beneficial offerings. These include: 

1. Dual benefits

ULIP is a life insurance policy with the additional advantage of wealth creation. Buying a life cover is vital to ensure the monetary security of your loved ones. Here, the insurance company pays the benefit to your nominees in case of your untimely absence. The money helps them maintain their lifestyle and fulfill their life goals.

The investment aspect lets you build a substantial fortune to take care of your future liabilities. These include leading a comfortable retired life, financing your children’s education, and sponsoring their wedding. 

2. Flexibility

One of the best offerings of a ULIP is the fund-switching option. As you already know, fund managers use your money to invest in equity, debt, or a mixture of both types of funds. If your risk tenacity changes or there is a shift in the financial market, the fund-switching feature allows you to adjust the investment accordingly.  

3. Tax exemptions

ULIPs offer many tax deductions, allowing you to save more money. Section 80C of the Income Tax Act, 1961 permits a tax exemption of up to INR 1.5 lakh annually on the premium payment. Additionally, as per Section 10 (10D) of the Income Tax Act, 1961, the maturity value and death benefit are tax-free. 

Should you invest in ULIPs?

Before checking the types of ULIP, you first need to determine if you should invest in the policy. ULIP is an excellent choice if you like to have more control over your investments. With ULIPs, you have the option to monitor the fund’s performance at all times and switch among equity, debt, or a combination of funds if needed.

ULIPs also let you put money in multiple types of funds. So, you can diversify your investment as per your needs. This makes ULIPs an appropriate investment instrument for people with changing risk appetite. You should invest in ULIPs if you want to get that flexibility. ULIP can be a valuable investment if you are looking from a medium-term or long-term perspective. The longer you stay invested, the higher your returns will be.

ULIPs are available online, making it simple and time-saving to invest in a policy through the insurance provider’s website. You can quickly compare different ULIPs on the Internet and choose the one that meets your requirements.