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Regarding your financial well-being, insurance is one of the most important things you can have. Buying insurance is one of the smartest things you can do if you want to protect your family and assets. Even if you aren’t getting married or buying a home, it’s always good to have some form of insurance in case something unexpected happens.
Many insurance products are available in the market today, including term insurance, ULIPs (Unit Linked Insurance Plan), endowment policies, etc. Insurance can also be distinguished between traditional plans and ULIPs. Before buying an insurance policy, one must be clear about the product choice. This article helps you understand ULIPs and their features and compares them with traditional plans to make an informed decision.
What is a unit linked insurance plan?
ULIP, or Unit Linked Insurance Plan, combines insurance and investment. They’re designed to offer you the best of both worlds: protection and growth.
Insurance companies provide ULIPs, so you can rest assured that you’ll be well-protected if something goes wrong. ULIPs allow customers to buy an insurance plan and invest in stocks, bonds, and mutual funds. Because they offer these two benefits in one package, ULIPs are popular among people looking to invest their money.
Features offered by ULIP
ULIPs offer a host of features that make them great investment tools. Here are a few highlighting features:
Allocation of investments
Using ULIP investment allocation features, you can choose the type of funds you want to invest in per your risk appetite. For instance, you can choose to invest aggressively in equities funds, in debt funds, or to balance your investments to benefit from the best of both worlds. Additionally, you can designate future premium payments to the funds of your choice.
You can switch between funds to manage your ULIP investment at times of market fluctuation. You can move into debt funds when the market is slow and back into equities when the market is booming. You can do all this without any additional fees or charges.
Withdrawal in parts
Partial withdrawals are allowed during the first five years of the policy. Partial withdrawals can be made in the event of an emergency. The number of partial withdrawals you can make, and their maximum amount, depends on your policy.
Adding additional funds as top-ups
Periodically, you might desire to boost your ULIP investment. ULIPs allow you to increase your investment at a later stage of your life cycle, which may be beneficial if you require a more significant sum at the end of the term.
Savings tool for taxes
ULIPs are among the best tax-saving tools since they offer tax advantages. The premiums paid towards ULIPs are tax-free up to ₹ 1.5 lakh per annum. By Section 10(10D), the sum received after the policy’s term is also tax-free.
Many ways to pay for premiums
ULIPs offer multiple premium payment options, so you can choose how you want to pay your premiums. You can pay a single premium payment, monthly, biannually, or annually if you don’t want to make recurring payments.
Which insurance plan, traditional insurance plans or ULIPs, is better?
ULIPs are insurance products that can be used for investment and savings. Within the insurance, you can change the funds and alter the amount of risk protection. You also have a chance to withdraw money before maturity. Traditional insurance plans offer death benefits, guaranteed returns, and tax benefits but don’t allow you to switch between funds.
ULIP vs. Traditional Insurance Plans Comparison
Long-term protection of capital is the most crucial aim of any insurance plan. However, traditional plans are not a good option because of high fees and low returns. Equity-based products are better because they protect your capital and provide returns that beat inflation. Here’s a comparison between ULIPs and traditional plans:
Information about the plans
|Unit Linked Insurance Plan allow policyholders to select the investments they want to make with their premium payments (equity, debt, money market, hybrid, etc.). Policyholders are responsible for investment risk.
|Conventional Plans are traditional life insurance plans offering guaranteed maturity proceeds and declared bonuses.
Flexible investment options
|ULIP allows you to invest in a way that suits your situation. You can choose to invest in equity, debt, or hybrid funds and even change your ULIP investment strategy per your risk profile.
|These plans don’t let you choose what to invest in. The company decides and invests your money as it sees fit.
|Unit-linked insurance plans allow you to track your portfolio online. They also let you know how much of your premium is invested, the charges levied, and the value and number of fund units you hold.
|Since your premiums are in a pooled “with profits” fund, you cannot keep track of your portfolio.
Option for withdrawal
|ULIP enables withdrawals from your fund after a few years of the plan. There is a 5-year lock-in period.
|There are limitations on withdrawal, and the losses, should you choose, could be significant.
choice of switching
|People have the option to modify the investment fund that the policy offers.
|Since the insurance business determines the fund, individuals are not permitted to change them.
|Units may be redeemed at maturity for the current unit price.
|As per the plan, the policyholder will get the sum promised at maturity along with any incentives.
It’s vital to remember that your personal preferences and risk tolerance will determine the type of investments you select for your retirement plan. For example, a Unit Linked Insurance Plan scheme may be ideal for you if you are young and have a high appetite for risk. On the other hand, if you are risk-averse and prefer a more conservative approach to investing in your retirement fund, then a traditional insurance plan may be a better fit for your needs.
Today, a variety of insurance policies are available, and each has advantages and disadvantages. It would help if you weighed all of these factors before deciding which policy is best for your needs.