Picking the Benefits of Unit Linked Insurance (ULIP) Plan
A Unit Linked Insurance Plan (ULIP) is very useful as it offers diverse benefits to take care of the various needs of the customers. It offers features of investment as well as of an insurance plan. There were several crest and troughs in terms of favorability of ULIP. As at one time, it was the best product for both consumers as well as the vendors and after some time, it was disliked by most of the investors.
However, IRDA helped to clear up the mess that was surrounded ULIP. This is the reason that helped ULIP to start its second inning in the stock market. Moreover, the performance of ULIP is dependent on the performance of the stock market. In short, ULIP is a seasonal product. With the passage of time, ULIP has now become quite reasonable but they are still worth investing. Let’s find out how!
Exemption:
As per the section 80 C, the sales pitch under ULIP come under tax benefit. Moreover, the limit under 80C is increased up to 1.5 lakh in this year's budget. Relationship Manager, Banks as well as Agents are striving to capture Rs 50,000 as waller share. People that fall under a high tax bracket, ULIP’s offer a great opportunity that helps you to save extra taxes paid by you. When it comes to tax planning one of the biggest mistake committed by the people is that they do not include their PF contribution under the limit of 80C.
Let’s take an example, if a person is contributing Rs 5000 every month to his or her EPF account, then for a Fiscal Year of Rs 60k will automatically be taken into account under section 80C. Now the person should worry about 90k which is the balance, not 1.5 lakhs which are projected by Financial Planners / Relationship Managers.
By investing into PPF and ELSS equally through SIP the policyholders can utilise the incremental limit of Rs. 50,000. Those who fall under a higher income tax slab, an incremental limit will be easily utilised by default using tuition fees for the kids, EPF Contribution and other ways.
ULIP is Reasonable Now:
Terms like reasonable or cheap are tricks to attract customers. Moreover, it is a relative term. For instance, if we say that cost of Platinum was Rs 34,000 per 5 gm 6 months back and now its cost is Rs 28,000 per 5 gm, therefore it is said to be cheaper.
Comparing it with the rates back then in 2006 when a cost of platinum was Rs 6000 per 5 gm, we can say that the rates have gone up 5 times. When compared with the peak price we can say that gold is cheaper, but looking at it properly we can see that it has increased by 500% in last one decade so it is not cheap when compared to its previous prices.
This example is similar to ULIP, as in 2008 ULIP allocation charges were approximately 100% of premium paid for the earlier years.
Investment segment of ULIP:
ULIP directly depends on the good performance of the stock market. So, when the stock market is not in a good phase, ULIP plans are also not much liked. In case of the bear phase of the stock market, the ULIP plans are also out of season. Returns from the ULIP are not guaranteed, as the investment segment is used in the stock market.
Long Term Investment Option:
Because of rising initial charges, the exact potential of a ULIP can be actualized if you go for a long time investment for instance 12 to 15 years. The preliminary expenses are divided and due to which the returns received are good. However, in the case of a premature withdrawal after completing the lock-in period of 5 years the investors will lose.
Wrapping up!
Despite the benefits offered by Unit Linked Insurance Plans there are uncertainties and risk factors attached to it, therefore there are alternatives you can try if you have specific requirements.