A unit-linked insurance plan (ULIP) comes with the dual benefits of market-linked investment and life insurance. Besides these benefits, a ULIP offers choice and flexibility regarding funds in which you invest the premiums and comes with tax benefits. Before buying this kind of plan, you may have several questions about it to make an informed decision. So, here are the most commonly asked questions about unit-linked insurance plans answered.
What Kinds of Funds Are Available in ULIPs for Investment?
A ULIP plan allows you to choose from a wide variety of funds based on your risk appetite and investment objective. If you aim for significant capital appreciation and can take a high risk, you can consider equity funds. You can go for fixed-interest instruments like bonds if you have a lower risk appetite or money-market avenues or cash funds for the lowest risk appetite and high liquidity. For a medium-risk balanced investment, you can consider hybrid funds.
What Charges Are Applicable in a ULIP Policy?
Administration Charges: They are levied every month for administering your plan at a certain percentage of the annual premium. The provider deducts the charge from the unit account at the start of every month by proportionately cancelling the units out.
Fund Management Charges: They are charged as a part of the value of the chosen fund before it reaches its NAV. You need to pay this fee to the fund manager for handling your investment with expertise.
Switch Charges: If you switch between debt and equity funds over 12 times during a policy year, every switch would cost ₹100.
Mortality Charges: They are charged depending on the amount of chosen coverage and your age.
What and How Long Is the Lock-in Period for ULIPs?
The lock-in period is the duration during which you can’t withdraw money from your investment or liquidate the generated fund value. In a ULIP plan, the period is of 5 years. If you discontinue the plan before that, surrender charges are levied.
What Are the Tax Benefits Associated with a ULIP Policy?
The premium paid to a unit-linked insurance plan qualifies for a deduction of up to ₹1,50,000 against your taxable income as per Section 80C of the Income Tax Act. Besides, the amount received on maturity is tax-free as per Section 10(10D).
Can You Partially Withdraw Money from a ULIP Policy?
You can do that only after the lock-in period of the plan is over.
Are Returns Guaranteed in a ULIP Policy?
Any fund that you choose in a ULIP plan is subject to the risks and changes of the capital market. If you want assured returns, it’s better to invest in fixed-interest and debt bonds instead of volatile options like equity funds. Know what you are opting for to be easily able to choose the funds to invest in a ULIP policy.
Make sure to choose a reputed insurance provider to buy a ULIP policy. If you want to financially protect your loved ones after your demise, consider the best term insurance.