Few years ago, the insurance industry was ruled by term and endowment plans. A decade later, ULIPs started gaining a lot of attention. However, most people had a misconception about ULIPs and their features, so a lot of individuals looked down on them as a complex product with high charges.
However, 2010 onwards, new age ULIP were introduced which focused on consumer needs and wants. The new age ULIP simplified the features and benefits for an end consumer so that he/she is clear about all the terms and conditions.
Unit Linked Insurance Plans (ULIP) provides protection and also help accumulate wealth. Here are the 5 simple things which you should know about ULIPs –
What sets ULIP apart from the traditional insurance policies is its ability to blend investment and protection in a single plan. When you invest in ULIP, you get to invest in the capital markets, as per your risk appetite, through its various fund options.
Below are the key advantages of ULIP
- Tax Benefits under Section 80C
- Tax benefit under section 10(10D)
- Option of systematic and disciplined investment
- Flexibility to switch between funds of your choice
2) How does a ULIP Work?
The premium in a ULIP goes towards meeting protection and towards building wealth. There are also allocation and administration charges involved in ULIPs. However, the new age Edelweiss Tokio Life Wealth Plus has zero allocation and administration charges. Units are allocated for the amount invested, in a fund of your choice. The fund could be equity, debt, or a combination of the two. You have the flexibility to choose the fund of your choice based on your investment strategy and risk appetite.
3) Costs involved in ULIP
Investments in a ULIP involve expenses such as:
- Premium Allocation Charges and administration charges: This is the amount deducted from your premium to meet the costs relating to marketing and distribution. These charges are higher in the initial years and gradually reduce post the third or fourth year of the policy. Administration charges are deducted on a monthly basis, this is towards the general administration costs of ULIP. Edelweiss Tokio Life Wealth Plus does not include these charges and hence higher percentage of premium is allocated in the fund of your choice
- Mortality Charges: This is the cost towards providing life insurance cover. This is a variable charge and is greatly dependent on the mortality rate of the insured
- Fund Management charges: This is for managing your investments and is generally a miniscule percentage
4) ULIP and Tax Benefits
The premiums on a ULIP are eligible for tax benefits under Section 80C where a deduction of up to Rs 1,50,000 from the taxable income of the individual is permitted. Even the death or maturity benefit is exempted from taxes under section 10(10D).
Making the Most of Your ULIP
- Long term investment: The most important thing about ULIP is that they are long term investments. You can gain the most if you stay invested for atleast 10 to 15 years.
- Customize your plan as per your requirement:
You could use the various add-on benefits to customize a plan.
- Top ups: For an additional amount over your regular premium, you could increase your investment component in the base policy.
- Switching between funds: You could switch your investments from one fund to another in case of changes in risk profile. Most companies allow 5-6 switches but Edelweiss Tokio Life Wealth Plus allows you to make unlimited free switches.