The ULIP edge
ULIPs are dynamic plans and are flexible by nature and hence allow for changes and high degree of customization in the plan as opposed to most of the financial plans which once purchased cannot be modified. It is because of embedded characteristics of transparency, flexibility, liquidity & goal based savings that ULIPs have emerged as preferred investment option today.The following subsections will not only help you to understand various attributes of ULIPs but also guide you to use these features to manage your policy.
Flexibility
- Flexibility to change your life cover : ULIPs give you the flexibility to choose your sum assured (insurance cover) at the time of policy inception. Moreover, some ULIPs allow you to increase your sum assured over the term of the plan. This is crucial as your protection needs keep on changing with time .Typically, greater the financial liabilities you have such as repayment of a home loan, greater will be your need for protection.
- Flexibility to change premium amount : With ULIPs you can easily change premium amount as most ULIPs provide you the option to increase or reduce premiums after a certain period of time to match your premium paying capability. Another distinguishing feature of ULIP is Top up which is an additional contribution over & above regular premium so that if you receive extra money today you can invest the amount in your policy & maximize your investment gains.
- Flexibility to opt for a rider : ULIPs also enable you to customize the policy with optional riders to enjoy additional protection. Riders are additional or supplementary benefits that are bought along with the main insurance policy. Some of the commonly offered riders by most insurance companies are critical illness benefit rider, accident & disability benefit rider, waiver of premium rider etc. For ex. a critical illness rider cover major critical illnesses like heart attack etc. In case of contracting any of the above illness, the insurance company pays the insured amount.
- Flexibility to choose your fund option : Most of the ULIPs come with an in - built range of fund options to choose from -ranging from aggressive funds to conservative funds so that you can decide to invest your money in line with your investment preferences and needs. What's more, ULIPs even come with the option of switching between different fund options so that you are able to reap maximum benefits from your investments.
Transparency
One of the key advantages that ULIPs offer is complete transparency which makes the working of a ULIP abundantly clear to the investor. Thus, you are empowered to make informed decisions on how to best use your ULIP.
- Benefit Illustration: As a customer it is your right to ask for a sales benefit illustration. Sales benefit illustration will help you understand how premium paid by you is utilized & what are the charges deducted year by year, by the insurance company for the term of the plan . It will also illustrate how your policy will grow in accordance with the choosen sum assured & premium. In fact IRDA has mandated that all insurance companies use two scenarios with 6 % & 10 % return rate to depict future returns.
- Brochures and key feature documents : While benefit Illustrations play a significant role in explaining the quantitative aspects of ULIPs, it is also important for you to know the other features and benefits which the ULIP offers. All insurance companies come out with brochures for prospective customers to go through & understand the plan thoroughly. You should ask your insurance advisor to provide brochure of the ULIP you intend to purchase.
Once a policy gets issued, your insurer will send you a key feature document capturing all the essential features of the plan. This is to ensure complete comprehension of the plan purchased.
- Free-look period: ULIPs also offer you a distinct feature that no other financial product offers as of now. It is called Free-look period which is a 15 day window during which you can close the policy & get paid back the entire premium less charge borne by company in issuing the policy in case you are unhappy with the product.
- Net Asset Value: It is critical that you monitor the performance of your policy on a regular basis. This will help you ascertain whether you are on right financial track or not. To help you do so all life insurance companies publish the NAV of different fund options on their website on a daily basis so that you can track the performance of your policy on a regular basis. This will also help you make informed decisions when it comes to comparing fund performances.
Goal Based Savings
Everyone needs to save for their important life goals. One of the prudent ways to do so is by investing in ULIPs which are long-term systematic investment options designed to address key financial goals. ULIPs help you cultivate a disciplined savings pattern which ensures that the money being set aside will go towards the fulfillment of the specific objective. In the absence of such a focused approach, there is a high possibility of savings towards one objective getting utilized for an immediate short-term requirement, thus jeopardizing the long-term goal. ULIPs are a potent safeguard against such a tendency.
Tax Benefits
ULIPs are an efficient tax saving instrument too .The tax benefits that you can avail in case you invest in ULIPs are described below:
- Life insurance plans are eligible for deduction under Sec. 80C
- Health insurance plans are eligible for deduction under Sec. 80C
- Life insurance plans and critical illness riders are eligible for deduction under Sec. 80D
- The maturity proceeds or withdrawals of life insurance policies are exempt under Sec. 10(10D), subject to norms prescribed in that section
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