IN ULIPS, THE INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

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5 Benefits of Investing in ULIPs

• Freedom to choose your Life Cover^`:

  In Unit Linked Insurance Policies, you can choose the amount of Life Cover^{`</sup> that you want. In most ULIPs, the minimum Life Cover<sup>`} offered is 10 times your annual premium amount. However, depending on the policy and the insurance company, you can select your Life Cover^` amount as much as 40 times of your annual premium or even higher.

• Freedom to choose your investment type:

  There are two basic types of funds – Equity Funds, Debt Funds and a mix of both called Balanced Funds. Equity Funds include investments such as buying shares of companies. Debt Funds invest in debt instruments. Balanced Funds are those funds that invest equal proportions in both equity and debt funds.
  ULIPs allow you to invest in different funds based on your investment goals and risk appetite. For example, if you wish to grow your wealth and don’t mind taking a risk on your investment, you can invest in equity funds. Similarly, if you wish to get steady returns on your investment, you can invest in debt funds.
  You can also move your money between equity and debt funds by using an option called switch. Most insurance policies offer a fixed number of free switches in a year, and for additional switches, a small fee is charged.

• Liquidity:

  With Unit Linked Insurance Policies, you also get an option called partial withdrawal+, which allows you to withdraw a part of the money invested in your policy. This option helps you to take care of immediate expenses such as your child’s 10th, 12th or graduation fees, going on a family vacation, in case of emergencies, and more. Partial withdrawals are usually free of cost.

• Goal-based planning:

  ULIPs are structured to help you secure your key goals such as the potential for wealth creation, retirement planning or saving for your child’s education. ULIPs also give you the added benefit of knowing that your premium is working towards securing your future goals.

• Tax^{^} benefits:

  Under the Income Tax Act, 1961, you can save tax on your hard-earned money by investing in a ULIP. You can get tax advantage at different stages of your life insurance policy.
  Stage 1: Entry Advantage – You receive tax benefits^{^} on your premium payments, under Section 80C.
  Stage 2: Exclusive Switching Advantage – You can make completely tax-free^{^} debt-equity switches
  Stage 3: Exit Advantage – You also receive a tax free^{^} Maturity Benefit^# subject to conditions of Section 10(10D)

How to maximise returns from a ULIP?

Here are some steps you can take to maximise the returns from a ULIP:

a) Start early:

Starting early gives time for your money to grow and provide you with better returns. Also, a longer investment duration helps to reduce the risk of short-term volatility of the market. Moreover, since a ULIP is also a life insurance policy, starting early ensures that your loved ones have a life cover^` to rely on from an early age.

b) Invest regularly:

It is important to invest regularly and be consistent. This financial discipline can help you invest a large amount over time, providing greater returns. You can also set standing instructions for automatic premium payments so that your ULIP continues to remain active and provide returns.

c) Take advantage of various fund options:

A ULIP offers you several fund options to choose from. You can choose to invest in equity, debt or balanced funds as per your risk appetite. ULIPs also allow you to switch between the funds as per your requirements. This helps you take advantage of the market conditions to get better returns. You can choose to invest in low-risk debt funds when the markets are volatile and in equity funds when the markets are favourable.

d) Review your portfolio regularly:

Reviewing your portfolio from time to time helps you monitor and track your investments. This enables you to make timely decisions to maximise your returns. You may then choose to increase your investment in the plan or switch between funds to get better returns.

e) Avail tax^{^} benefits:

The premium paid towards a ULIP is allowed as a deduction up to ₹ 1.5 lakh per year under Section 80C^{^} of the Income Tax Act, 1961. The payouts received from the plan are also tax^{^}-free under Section 10 (10D)^{^}. These tax^{^} benefits help to increase the overall returns from the plan

Busting ULIP myths

Below are some common myths regarding ULIPs:

ULIP Myth #1 - ULIPs are costly

ULIP myth buster: You can choose the amount you want to invest in your ULIP. ULIPs allow you to choose your premium amount as per your convenience and requirements. You can also start with a small amount at first and increase your investment over time. The charges you need to pay while investing in a ULIP are also minimal. For example, ICICI Pru Signature does not charge any amount for premium allocation. The mortality charge and the policy administration charges are also returned to you at maturity^*. In other words, with ICICI Pru Signature, your entire premium is invested in the funds of your choice without any deductions. In addition, the plan provides you with a life cover` to secure your loved ones financially in case of an unfortunate event.

ULIP Myth #2 - ULIPs are risk

ULIP myth buster: The risk in a ULIP depends on the funds you choose. Equity funds may provide high returns but also come with high risks. However, if you want to invest in low risk funds, you may opt for debt funds or balanced funds. As an investor, you can choose to invest as per your risk appetite.

ULIP Myth #3 - ULIPs are not flexible

ULIP myth buster: ULIPs offer flexibility in various ways. You can choose the amount you want to pay as premium, the premium payment term and even the frequency at which you want to pay (monthly, half-yearly, yearly, or all at once). You can also choose the funds that you want to invest in and switch between them as per your requirements.

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How to choose the best ULIP

ULIPs are a combination of life insurance and investment instruments. Before opting for a ULIP it is important to keep the following things in mind:

• Know the key features:

  ULIPs offer various features like
  • A life cover^`
  • An option to switch funds during the tenure of the policy
  • A top-up option to invest surplus money during the policy tenure
  • Partial withdrawal¹ of funds in times of need

You should check the features offered by each plan and choose one as per your needs.

• Evaluate your goals:

  You may have goals, such as buying a house, starting your own venture, your child’s higher education, and more. Evaluating your goals will help you calculate the amount you will need to achieve them.

• Know the ULIP charges:

  There are various charges like policy administration charges, fund management charges, or more that may be included in your plan depending on the fund you select. It is important for you to understand the different charges you may incur in order to select the right plan.

• Check the tax^{^} benefits:

  Premiums paid are allowed as a deduction, up to ₹ 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961. You should check the tax benefits^{^} available to you while choosing a ULIP.

How does a ULIP work?

ULIPs are a category of life insurance plans that provide you with the benefit of growth of your money along with a life cover^{`</sup>. They do this by investing a part of your premium towards a life cover<sup>`} for you, and the rest in funds of your choice. Most ULIPs give you the option to choose from multiple equity and debt funds. You can also invest in a mix of both types of funds as per your risk appetite. The returns from your plan will depend on the performance of the fund chosen by you.

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