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An Overview of the Unit Linked Insurance Plans - What's Right For You?

Long-term investors receive superior returns than short-term investors, whether in the world of investing or elsewhere. This is true of Unit Linked Insurance Plan as well. In actuality, ULIP plans have provisions that honour long-term investors. Let us take a look at what they are, and why they might be the best investment plan for you.

What is a Unit Linked Insurance Plan?

The Unit-Linked Insurance Plan, or ULIP, combines investing with insurance. It is a kind of plan that offers advantages of risk protection through life insurance and also gives you the freedom to manage your finances.

It achieves the objectives of wealth building and life insurance. A typical investor who starts a ULIP does so in order to cover beneficiaries. A portion of your investment in life insurance is subtracted by the insurance company, who then invests the remaining sum in a fund based on equity or debt according to your preference and matches it to your long-term objectives, such as retirement planning, child education, or any other significant event.

Similar to mutual funds, ULIP plans manage their assets toward a defined goal. The plan determines its net asset value, which is then market-linked and increases in value. A wider group of investors are also acquiring units when an investor buys units in a ULIP. Shares in a single strategy or a variety of market-linked Unit-linked Insurance Plans can be purchased by investors.

How does it work?

Unit Linked Insurance Plans, also known as ULIPs, are insurance plans that combine the advantages of life insurance and mutual funds into a single plan or product. These plans offer both life insurance and market-linked rewards. Your plan's premiums are changed to reflect the pertinent fees that were previously specified. The net premium is subsequently placed in the fund of your choosing, such as an equity, debt, or balanced one. The Fund Value uses net asset values, or NAVs, to reflect your expanding corpus.

The Fund Value is paid upon maturity. The higher of the Sum Assured promised or Base Premium Fund Value plus Top Up Sum Assured or Top Up Premium Fund Value, if Any, is paid in the event of death based on the selected option.

The value of the fund would initially remain low because a big portion of the premium is utilised for plan expenses during the first few years of a plan. The investment and insurance components of the premium are separated later. The amount invested in a fund of your choice—which may be debt, equity, or a combination of the two—is converted into units. The performance of the initial fund is a factor in how the units are distributed.

Why you should consider a ULIP plan?

The lock-in period for ULIPs is five years. By doing this, it is made sure that premiums are paid on time and with discipline. ULIPs are therefore excellent for medium- to long-term objectives.

Sections 80C and 10D of the Income Tax Act of 1961 exempt the payable contributions for ULIPs from taxation. The government requires that investments made in ULIPs be exempt from the Long Term Capital Gains (LTCG) tax, which increases the tax-efficiency of ULIPs.

Fund switches between several fund options are a characteristic of Unit Linked Insurance Plans. This implies that, depending on how a particular fund is doing on the market, the insurance holder can switch between fund selections.

As many as 10 or even 12 switches are offered by the insurers without incurring any fees. After then, a small fee is levied for changing between funds. As a result, ULIPs are very adaptable to the desires of the customer and provide a respectable level of flexibility that enables the policy holder to make wise choices.

Final Words

Many ULIP plan providers offer unanticipated perks and buried details that come in handy. You can use a ULIP policy effectively if you have a thorough understanding of the options you have available.

Instead of purchasing life insurance, consider purchasing a ULIP. It reduces the need for multiple items while serving a variety of functions. It really is the next development in insurance.

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5 Crucial Factors to Consider When Purchasing Life Insurance

Entropy in the universe and inflation on earth is always on the rise. Therefore, financial stability is essential even in the early stages of your career. Life insurance is a way to protect your loved ones by providing a lump sum of cash if something unfortunate should happen to you. While life insurance is not something most people look forward to purchasing, it is one of the smartest investments to make for yourself and your future family.

Purchasing life insurance may seem overwhelming with all the different types and factors to consider before deciding which policy works best for you. However, you need to think about a number of things to purchase the right type and amount of life insurance coverage. Here are five crucial factors that will help you know what questions to ask when purchasing life insurance.

Consider the type of life insurance you want to purchase

The first thing to consider is the type of life insurance policy that you need. There are four chief types of life insurance: term life insurance, whole life insurance, unit-linked insurance plans (ULIPs), and endowment plans. You can learn in-depth about them by visiting the website of any reputed insurer, like Edelweiss Tokio Life Insurance. Alternatively, you can also consult your insurance agent.

Age and health condition of the insured person

One other factor to consider when purchasing life insurance is the age and health condition of the insured person. The older you happen to be when taking out a policy, the more expensive it will be because the likelihood of dying during the term of the policy increases with age. Age also affects the amount of coverage you can receive.

There are age brackets for each type of coverage, so the younger you are when purchasing a policy, the more coverage you will be able to receive. The same goes for health conditions that you may have.

There are policies available that do not factor in health conditions, but they are significantly more expensive than policies that do. Also, being honest with your insurance agent when asked about your health conditions is crucial. If you do not disclose a pre-existing condition, your policy can be voided, and your family will not be able to collect your policy's death benefit.

Decide on the amount of coverage you need

While it is important to purchase enough to provide for your loved ones adequately, there is no set amount you need to purchase. Instead, the coverage amount is based on various factors, such as your current financial situation, projected financial needs, and the amount of debt you have. Typically, the sum assured should be 15-20 times your current annual income.

The amount of coverage you need is based on your specific situation, so it is important to understand how each policy works to ensure that you purchase the right amount.

Check your eligibility and be aware of any requirements

Some life insurance policies require you to pass a health exam before purchasing the policy. Other policies may require that you be tested periodically throughout the term of the policy. Age, health condition, family history, and lifestyle choices such as smoking or drinking heavily can all affect the cost of your life insurance policy and your eligibility to purchase a policy.

There are also certain health conditions that life insurance providers will not cover if you have them. Again, this will give you a better chance of being approved for the policy.

Find the right insurer and match up the best product for you

Different insurers offer different policies, so it is vital to find the right insurer for you. You can look at a few factors to determine which insurer is best for you. These factors include the cost of the policy, the death benefit amount, and the length of time you are required to keep the policy in force.

Bonus Tip - Be clear on your goal for purchasing life insurance

It is essential to be clear on your goal for purchasing life insurance. This will help you when you are selecting among the different types of policies available. For example, if you need coverage for a specific amount of time until your child is out of college, then a term life insurance plan is the right choice for you. This will provide coverage for a certain amount of years or until your child graduates from college.

Conclusion - Be aware of the exclusions

There are certain exclusions that may apply to some policies. These include any pre-existing conditions that would exclude you from coverage and health conditions that would make the policy more expensive. It is important to be honest with your insurance agent when asked about any of these events in your past. If not, your policy can be voided and your family will not be able to collect your policy's death benefit. Access to the necessary information can make purchasing life insurance much easier and less stressful. You can learn about the different types of policies and find out which one is best for you.

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Edelweiss Tokio Life Insurance plans come with affordability. You can use the premium calculator to determine the premium amount you will be paying towards your policy.

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The biggest benefit of starting early is the power of compounding which provides the foundation for time value for money. Even if you invest a small amount for several years consistently, it will grow into a large corpus

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It is always better to secure your family’s financial future so that they would not face any financial crisis after you. This makes it a perfect reason why you should buy a life insurance policy

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How beneficial are Unit Linked Insurance Plans in Retirement?

Retirement is an often overlooked aspect of financial planning. It takes a backseat in favor of other immediate financial needs, like a term plan or mutual fund investments. But like any other aspect of your financial portfolio, retirement planning is best done early in your life.

But where do you start? When starting out, you do not have the financial bandwidth to invest in various financial products, especially those that serve a specific purpose, like pension plans. So your best bet is to choose an investment which can serve multiple purposes at different stages of your life. The plan’s utility must change with your requirement, and such adaptive utility is currently offered by Unit Linked Insurance Plans .

Let’s understand what they are and how they can be the perfect financial instruments to start your retirement planning.

WHAT ARE UNIT LINKED INSURANCE PLANS?

Unit Linked Insurance Plans, or ULIPs, are life insurance products that have the added advantage of being lucrative investment vehicles simultaneously. Most major insurance providers in India offer them. They have dual benefits:

They are life insurance policies that provide life cover for a given period of time. The cover is for a sum assured that is paid out in case of the untimely demise of the policyholder.

They are investment and savings instruments that help you create a sizable corpus over time.

Because of the two-sided benefits, ULIPs are many sought-after plans for anyone looking to have long-term gains in addition to life cover.

HOW DO ULIPs WORK?

Unit Linked Insurance Plans work very similarly to a traditional life insurance policy, wherein you are required to pay a premium at regular intervals of time. The difference here is that the premium you pay is divided into two parts, one going into providing you with life cover and the other going into the investment instrument of your choice. The investments are made in various funds that can be debt, equity or balanced. There are a handful of choices with varying degrees of risk. You can choose a fund of your choice or let the company decide on your behalf, leveraging their expertise to maximize your profit.

For ULIPs, there is an initial 5-year lock-in period during which you cannot withdraw the money that is accumulated. After the lock-in period, you are allowed to make systematic withdrawals.

ULIPs FOR RETIREMENT

Considering that you opt for a ULIP specifically for it to be a retirement planning vehicle, and you do it early, there is immense scope for wealth creation. Unit Linked Insurance Plans are great long-term savings products, and you can have a very sizable corpus at the time of your retirement, which you can get as a lump sum or make systematic withdrawals to aid any pension plans that you might have. In the case of a very large corpus, you won’t even need any supplementary pension plan.

Again, all these benefits can be maximized only if ULIPs are opted for early in your life.

WHAT ARE THE OTHER BENEFITS OF ULIPS?

In addition to wealth creation, the life cover in ULIP provides added financial security for your family in case you are no longer around. ULIPs also provide flexibility in terms of switching the type of investment products you have put your money into. In addition, certain riders enable you to customize the policy as per your needs.

Finally, ULIPs provide Tax Benefits under section 80C of the Income Tax Act, 1961. The premiums paid up to an amount of Rs. 1.5 lacs are exempted from taxation.

CONCLUSION

ULIPs are a great way to start your investment journey. Your financial portfolio can have a versatile start, with a Unit Linked Insurance Plan serving many purposes. First, as a life insurance policy to secure your family’s future, second, as a savings instrument, and finally, as an investment instrument that will help you create a corpus for your golden years. Don’t wait; look for a suitable ULIP today!