ULIPs or Unit-Linked Insurance Plans have been preferred investment options for many. UILPs are also being promoted majorly by life insurance companies after 10% long-term capital gains taxes were declared in the 2018 Union Budget for gains of Rs. 1 lakh and above on equity based mutual funds and stock investments. This is because the new taxes do not apply in case of ULIPs. Here are some of the other things that you should know about these investment options-
- Investment & Insurance Together- ULIPs offer ample protection for your family throughout the tenor of the policy with the insurance coverage and there are returns given on the amount invested upon maturity. A specified amount from the total premium paid is invested into debt and equity funds which will help you take care of long-term goals.
- EEE Benefits- EEE (Exempt-Exempt-Exempt) is a mode which comes with ULIPs. This basically indicates that tax deductions can be availed by you during the stages of withdrawal, earnings and investment. The premiums that you pay are deductible from your taxable income. There are no taxes on the income that you earn every year from ULIPs. When you withdraw the maturity amount or sum assured, this is also exempted from taxation.
- Top-Up Provisions- You can increase investment amounts in ULIPs by using the top-up facility. You can invest an extra amount over and above your current policy. You can get taxation benefits for these top-up investments as well.
- Switching- You can always use the switch option whereby you can change the ratio of the amount invested and can shift funds to hybrid/debt funds from equity fund investments depending on the risk exposure. Your own risk appetite influences the portion that you will invest into equity instruments while the remainder will go for debt based investment channels. There are free switches offered by many ULIPs every year as per experts.
- Charges & Fees- The charges that you have to keep in mind are the policy administration charge, premium allocation charge, fund management charge, mortality charge and surrender charge. The charge for premium allocation will initially be higher and administration charges are levied on the monthly basis. Mortality charge is the cost allocation for offering life insurance coverage to you. The fund management charge varies between 0.5.2%. Although the charges may seem high initially, you would do well to stick around for the long haul as far as investing is concerned.
- Lock-In Periods- UILPs usually have 5 years as a minimum lock-in period. You can increase the duration depending on the terms and conditions mentioned in the policy. You can completely stop your ULIP afterwards or discontinue the same by not paying your premiums within the lock-in duration. However, the corpus accumulated will be shifted to the discontinuance fund which insurers are required to keep and the purpose will be to hold the money from the policy which has lapsed until the lock-in period gets over. Post the lock-in duration, you can withdraw the money after deduction of applicable charges. Only the fund management charge can be levied before the expiration of the lock-in period.