When it comes to securing the financial future of the family members, selecting an appropriate investment plan becomes a mandate. Many investors look for the Best Savings Plan in India, which offers the dual benefit of insurance & investment under a single plan. But, it also becomes mandatory to look into the pros & cons of a plan in which you are planning to invest.
Here, ULIP comes into the picture, offering both insurance & investment benefits, but it may not always serve the purpose. This is because it depends on the future financial objectives, obligations, investment horizon, & risk appetite of the investor. Under this plan, the premium amount paid is diverted towards the funds opted for, & the remaining amount is allocated towards life insurance. This plan also offers an option to switch between the funds & your changing requirements. If the insured dies suddenly, his nominees will receive the death benefit or the fund value, whichever is higher. In case the insured survives the policy, he will receive the fund value that would have been accumulated, depending on the fund’s performance.
Reasons to Invest in ULIP
Provided are the reasons to invest in ULIP:
- Flexible
It provides you with an option to invest in any fund type that best suits you, i.e. debt, equity, or balanced funds. All these types have their own risks & returns, hence their pros & cons must be considered well in advance.
- Tax Advantages
Many different tax advantages can be availed under sections 80C & 80D of the Income Tax Act, 1961, including:
i. Easy Entry
This plan allows for a tax deduction u/s 80C on the premium amount paid for a maximum of up to INR 1.5 lakhs. The death benefits received are also exempt from tax u/s 10(10D), subject to certain terms & conditions.
ii. Switching Between the Funds
Under these plans, you are allowed to switch between the different fund types, i.e. debt, equity, or balanced funds, subject to certain terms & conditions.
- Withdrawal Facility
Though it does not allow withdrawal of funds before the completion of the lock-in period. But with some additional charges, you are allowed to withdraw funds anytime before the completion lock-in period.
- Higher Returns
Many different types of funds that offer higher returns, which include mainly equity, are market-linked. Also, this plan allows you to switch between the funds depending on the market fluctuations to increase the returns.
- Death Benefits
The beneficiaries are eligible to receive the death benefits on the unfortunate death of the policyholder. These receipts are exempt from tax, which provides financial security to the family members of the policyholder in their absence.
- Long-Term Growth Benefits
If ULIPs are planned early, they should be left for a longer tenure to get compounding benefits, resulting in higher returns.
- Top-Up Availability
This plan also allows for increasing the amount of investment by topping up, hence increasing your returns.
Pros of Investing in ULIP
Provided are the pros of investing in ULIP:
- Flexibility of Changing Life Cover:
This plan allows you to adjust the premium amount according to your comfort, which means the premium amount can be either increased or decreased. It helps in achieving an optimum coverage that best suits your future financial objectives.
- Availability of Premium Redirection:
This plan also allows you to change the type of fund to which you have redirected your investments, but only in the case of future investments. This option cannot be availed for the premium amount already redirected to date.
- Dual Benefits in One Package:
This plan offers the dual benefits of insurance & investments under one single plan, all for one single premium amount.
- Flexibility of Changing Life Cover:
This plan allows you to adjust the premium amount according to your comfort, providing you with optimal coverage to achieve your future financial objectives.
- Tax-free Payouts:
The death benefits received by your nominees are exempt from tax under section 10(10D) of the Income Tax Act, 1961, hence leading to savings.
Cons of Investing in ULIP
Provided are the cons of investing in ULIP:
- Expensive Premiums:
As a single premium amount is to be paid for dual purposes, i.e. insurance & investments, it is quite higher in comparison to a term insurance plan.
- Constant Market Fluctuations:
Being a market-linked plan, they keep on fluctuating invariably, always maintaining room for loss with the decrease in share price.
- Lock-In Period:
This plan comes with a minimum lock-in period of 5 years, before which, if any amount is withdrawn will attract penalties & additional charges.
- Chargeable Switches:
This plan allows a certain fixed number of times to switch between the funds; more than this will attract additional charges.
- Higher Initial Investment:
The initial premium cost is higher compared to the later ones due to them being directed towards higher premium amounts.
- Complex Investments:
This plan is complex to understand for the new investors, as they are required to maintain records of premiums & investments.
Things to Be Kept in Mind While Investing in ULIP
The following are certain factors to be kept in mind while investing in ULIPs:
- Select the right premium:
Choose the premium amount that is budget-friendly & suits your pocket, & is not difficult to manage.
- Check the solvency of the insurer:
Review the solvency ratio of the insurance company to ascertain its claim settlements.
- Evaluate additional charges:
Ascertain the associated additional charges to know the total cost associated with the plan.
- Determine the risk potential of funds:
Evaluate the level of risk associated with where the funds are invested.
- Compare premiums thoroughly:
Compare the different ULIPs available in the market to look for the most reasonable plan.
Conclusion
While looking for the best savings plan in India, one should consider the pros & cons before finalising the plan. This means before making a final decision to choose a plan, one should look, compare & evaluate all the available plans on the basis of their pros & cons. Hence, an investor is advised to choose a plan that best aligns their future financial objectives.
