Look for these 7 factors while buying a low-cost ULIP

A Unit Linked Insurance Plan (ULIP) was introduced in the Indian markets years ago. Although it combines the dual benefits of investment and life insurance, it did not appeal to many investors due to specific reasons. Initially, a ULIP investment was only known for its high charges. However, the traditional ULIP plans were reintroduced in the markets again after the Insurance Regulatory and Development Authority (IRDA) set new rules. Today, a ULIP policy is popular amongst the investors for its low costs and high returns.

Before purchasing the new-age ULIPs, let’s understand these seven factors mentioned below to help you make the right buying decision:

  1. Consider the ULIP charges

When you invest in a ULIP policy, you should regularly pay the premium, which is directed towards the ULIP charges. While a specific proportion of your premium is invested in the ULIP funds, the remaining amount is deducted for the ULIP charges. As a policyholder, you should know the most common ULIP charges, which are as follows:

  • Premium allocation charge
  • Policy administration charge
  • Fund management charge
  • Mortality charge
  1. Choose the right ULIP fund

A ULIP policy is a flexible option for investment. When you purchase a ULIP policy, you can choose the available funds based on your risk appetite and investment goals. In simple term, the more the options, the more the flexibility.

These are the following funds of a ULIP policy:

  • Equity funds

Equity funds are high-risk fund options, which might guarantee high returns based on market performance.

  • Debt funds

Debt funds are risk-free options, which provide relatively low returns as compared to equity funds.

  1. Use the switching feature

As you cross different milestones in your life, your risk appetite may decrease. For instance, when your family size increases, you might shoulder more financial responsibilities of your loved ones. Hence, you might be less capable of taking risks, which makes the selection of debt funds essential. With the switching feature of a ULIP policy, you can shift from equity funds to debt funds as you grow older.

  1. Stay invested for a long time

When you purchase a ULIP policy, you can use the long lock-in period to your advantage. A ULIP policy has a lock-in period of five years. If you stay invested for five years, you can grow your funds to meet your life goals with ease. The longer your investments, the higher the corpus.

  1. Look for death and maturity benefits

The primary objective of a ULIP policy is to provide financial protection to your loved ones. A ULIP policy offers a death payout to your nominees to maintain their current lifestyle in your absence. On the contrary, if you survive the ULIP policy, you might receive maturity benefits from your insurer. As a policyholder, you should submit your discharge form as well as basic documents to obtain the maturity benefits.

  1. Make use of its transparency

You can buy a ULIP policy directly from an insurance agent or your insurer’s online website. Online ULIPs ensure transparency since you can purchase a policy directly from the website without the involvement of the third party. In addition to this, online ULIPs are not only time-saving but also convenient. As a policyholder, you can either purchase or renew your ULIP policy on your mobile phones in three simple steps:

Step 1: Select a ULIP policy.

Step 2: Purchase a ULIP policy.

Step 4: Pay the premiums online.

  1. Avail tax-saving benefits

A ULIP policy offers one of the biggest advantages of helping you in saving taxes. Under a ULIP policy, you can claim tax deductions under Section 80C and Section 10(10D) of the Income Tax Act, 1961. The tax deduction is liable on premiums as well as maturity benefits. Under Section 80C, you can claim a deduction on your taxable income up to Rs. 1,50,000, while the maturity payout is tax-free under Section 10(10D).

To sum up, a ULIP policy has raised the bars by providing low costs, high market-linked returns, and tax-saving benefits. However, you should ensure that you select a ULIP policy from a reputable company. Before purchasing a ULIP policy, consider your financial needs, compare various plans, and make the right choice accordingly.


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