Ten things you need to know about unit linked insurance plan

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Only a few years back the whole market of the insurance sector was ruled majorly by term and endowment plans. As the time passed by, the customer wanted more options and the insurance companies were looking to change the scene as well. Then, came the Unit Linked Insurance Plans that are also known as ULIPs. These plans seem complicated but if you understand them properly, they are easy to manage.

The following are the 10 top points you need to know about ULIPs

  1. What is the use?

ULIP provides you an option to mix the insurance and investment in a single plan. With the units you buy in Unit Linked Insurance with the premiums you are paying, the money will not only provide your family an assured amount at the time of untimely death but will also give you a secure future after retirement.

  1. The advantages

  • It provides insurance cover
  • Unit Linked Insurance Policy provides tax benefits under Section 80C
  • You can invest via systematic investment
  • Gives you a wide range of investment options

  1. How does it work?

The initial premium amount goes in the policy expenses. After that, the insurance company will allocate the units based on the amount you have invested. These units can be of the funds of your choice. You can choose to invest in equity, debt or you can decide to use a combination of both. In the first few years, the units allocated remain low due to the high cost of an insurance policy but it will increase with time.

  1. The cost involved

  • Allocation charges: This amount is generally used by the company for marketing and distribution. In the initial years, the amount deducted is higher and it gradually lowers down.
  • Admin charges: This amount is deducted on monthly basis.
  • Mortality charges: This amount is used to provide insurance cover.
  • Fund management: This amount is charged for managing your funds. It ranges between 0.5% to 2%

  1. Tax Benefits

Investments in Unit Linked Plan are eligible for tax benefits under section 80C.

  1. Surrender of ULIP

You can also surrender the units associated with the insurance policy in case you want to either invest the amount somewhere else or need the money.

  1. Riders

There are many additional benefit options available which enable the insurance policy to be more productive. You should ask your agent or check online for the options.

  1. Choose long-term

ULIPs are good if chosen for long term basis. There are options available for shorter terms as well but the risk is higher in that case.

  1. Customization

There are many packages available, which allow you to customize the insurance policy as per your requirement. You may need to compare multiple insurance policies available to find the best one.

  1. Top-ups

You can always choose to increase the amount you are investing in ULIP with top-ups available.

ULIPs are a great way to invest the money while enjoying the benefits of insurance policy. Other market investments, the risk factors are much lesser in case of ULIPs. In case you have any more questions, please contact us.