Unit Linked Insurance Plan (ULIP) is a plan that gives both life insurance and investment benefits to investors under a single policy. In this, a part of the money is invested in stocks, bonds, and similar assets, while the remaining part provides the insured with a life cover. At maturity, ULIP policyholders get back the investment portion of the policy.
Here are key things to consider before investing in ULIP:
Always go for a long-term investment horizon
According to Naval Goel, CEO, PolicyX, investors should always go for a long-term investment horizon. A ULIP continued till maturity works as an advantage and gives dual benefit of savings and protection. It offers a diversity of funds and gives higher returns over long durations.
Never let tax planning be the sole motivator
The money invested in ULIP can be claimed as a deduction under section 80C (life insurance) or 80CCC (pension). A maximum of Rs 1.5 lakh is allowed under section 80C/ 80CCC.
While this is a major advantage of ULIP, Goel advises against investing in it only for tax sake as the premiums of ULIPs are high. It should, however, be considered by someone who wants to cover 3 things in one go - insurance, investment and tax-saving.
Check the charges thoroughly as they can derail planning
ULIPs have a variety of charges that includes allocation charge, policy admin charge, mortality charge and fund management charge. Knowing these charges and what they mean will help investors in selecting the most suitable policy for the long-term objectives.
Choose the adequate sum assured
The sum assured is a minimum guaranteed amount that ULIP gives the nominee in case of the policyholder’s death. The higher the premium paid, the greater is the sum assured. On the other hand, the lower sum assured would result in better returns because a lesser amount of mortality charges will get deducted.
Hence, it’s totally on the investors’ requirement as to what should be the sum assured for him/her.
Select the investment option as per the risk appetite
As a policyholder, one must know where the money is being invested in ULIPs and what are the risks associated with those funds. Like any other investment made by investors, the risk of fluctuation due to market volatility is to be ensured by the policyholders.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
(Edited by : Ajay Vaishnav)