When people see a linear growth in the capital market, they also wish to use their funds in ways to let them participate in the booming capital market of India.
One of the best ways to invest your funds across capital markets is Unit – Linked insurance Plans or ULIP offered by insurance companies. Insurance companies have developed plans that combine the benefits of life insurance protection as well as provide options of participating in the growth of the capital markets. These funds help you invest in equity, debt and balanced funds with a liberty to choose the fund type based on their past performances. Insurers offer policyholders the following choice of funds:
Equity funds – Also known as growth funds, invest your money into equities which are shares/stocks traded in the stock market.
Debt Funds – Also known as bond funds, the investments are done primarily in government guaranteed securities, safe debts and other high investment grade corporate bonds.
Money Market Funds – Also termed as liquid funds, the investment is done in short-term money market instruments such as treasury bills, commercial papers, etc.
Balanced fund – Such funds strike a balance between equity as well as debt oriented funds.
Some features of ULIP plans
ULIPS offer fund switching, in which, a policyholder can switch his or her funds from one fund to another during the tenure of the policy. Policyholders may be allowed to redirect the current premium into any fund irrespective of the fund in which the earlier premiums have been invested. It will help you take advantage of the market conditions.
They are allowed to make a lump sum additional contribution in their funds at any point of time. The risk cover will remain same, but the amount going into the fund for investment will be known as a top-up.
If in case the policyholder is unable to pay the premium for a particular year, due to some issues, no new units get added to his or her fund. Also, some of the units may get deducted towards the annual charges for cover, administration, fund management, etc. It is called as a premium holiday.
ULIPs differ from other traditional plans in terms of documentation, revival conditions, policy lapse and claim settlement procedures. The proposal form will include questions on family and personal history.
The agent’s report is also considered for. The underwriter can also call for more reports, medical or otherwise to check insurability, if necessary.
ULIP Policy is one of the best tax savings instruments. You get a deduction under Section 80C of the Income Tax Act, 1961, up to INR 1.5 Lakhs per year on your taxable salary for the premiums you pay for the ULIP. The maturity amount the nominees receives when the policy matures or the death benefit your family gets on your (policy holders) death are tax-free under Section 10(10d) of the Income Tax Act.
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