All investors often want to secure their finances and make enough investments to cover their future demands. While each of them can be handled separately, there are products that address both of them, such as unit-linked insurance plans (ULIP). Since ULIP plans are market-linked insurance policy, it is suitable for achieving long-term objectives. ULIP offers a number of capabilities that can be used to do this.
Making use of features
At various points in a person’s life, they have varied financial demands. One can tailor their savings plan by using ULIP’s features, which include partial withdrawals, a variety of fund alternatives, and several modes of payment methods for premiums. One of the ULIP tax benefits that are offered is that ULIPs permit one to take partial withdrawals without paying taxes once the lock-in period expires after five years. You may take a partial withdrawal from your ULIP fund as and when a goal is in reach to cover the expense.
The tax benefits mentioned in the article may not apply if you opt for the new tax regime since many tax exemptions and deductions have been scrapped within the new regime. They are also subject to any changes in the law.
Make the proper decision by using premiums and top-ups.
Select the SIP option and choose to use ULIP monthly. The cost of units can be averaged with the help of monthly investments, which also develop a habit of investing. To park any further investible surplus, use ULIP’s top-up feature. Top-ups boost the life insurance coverage while also lowering the policyholder’s overall ULIP cost. Top-up fees typically range from 1 to 2 percent, which is lower than the fees associated with the first premium payment. Therefore, top-ups entail purchasing extra units at a lesser price. As a result, your overall average cost is decreased. The estimated value of your ULIP investment can be calculated using a ULIP calculator based on the premiums, tenures, and other information you enter.
Consider needs for different life stages.
Calculate the amount needed to meet your long-term financial needs after accounting for inflation. A ULIP calculator is available on the websites of most insurers and can be used to determine one’s insurance needs. Additionally, you can ask your insurer’s agent to create a ULIP “illustration benefit” based on your age, term, sum assured, and the amounts required to accomplish specific goals at various phases of your life.
Determine the amount of premium that must be paid at a specific sum promised so that the fund value at each stage of life satisfies your demands at that time. The least sum assured must be 10 times the premium. However, taking a coverage of 15-20 times the annual premium can be helpful for someone using it for life goals.
Utilising fund options
After paying the necessary fees, the premium is invested in one or more ULIP fund selections. The majority of ULIPs offer 5 to 9 fund alternatives with different equity and debt asset allocations. Additionally, some equity funds may be large-cap funds, and others may be mid-cap funds. A few ULIPs might also be exposed to many caps and themes. Liquid to short-term and long-term debt funds are possible choices for debt funds.
No matter the holding duration, switching between such fund options is tax-free, thus offering ULIP tax benefits. To prevent the temptation to switch between funds every time the market moves 500 points up or down, one should resist the desire to time the markets given the long-term nature of goals.
Choose large-cap funds for all of your objectives that are at least ten years away because they invest in reputable blue-chip companies and are less volatile. Avoid thematic funds in ULIPs and stick to diversified funds.
Most ULIP plans include asset allocation tools that make sure the fund investment in the policy is related to your stage in life for those investors who are unable to make the decision about allocation. These methods make sure that the allocation of premium to equities funds is large when one is younger and decreases as one gets older and moves funds into less volatile debt funds.
The performance of ULIP’s funds is a significant disadvantage. Early exit after a five-year lock-in period would be expensive if the fund underperforms. To lessen the effects of this downside, one should carefully consider ULIP’s qualities as well as the performance of the funds. Compare the performance of the equities fund over time with its benchmark as you narrow in on the ideal ULIP.
If properly employed, a single ULIP can assist in achieving objectives at many life phases. Keep in mind that there is an administrative fee associated with purchasing each new ULIP, which can be easily avoided if all of your investments are made in the same ULIP. If purchased for the appropriate reasons, its inherent flexibility and transparency make it a suitable investment for long-term objectives.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.