Tuesday, November 30, 2021
Finance

How to choose the best unit link insurance plan

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When the stock market and mutual funds used to dominate the market, ULIP or Unit Linked Insurance plans were launched by an insurance provider to attract customers who followed high investment high returns policy. So, if you are looking for some of the best wealth planning options in the market, a unit link insurance plan must be in your mind as it is one of the most popular investment products offered by insurance companies to customers.

Here is the complete guide you can follow to ensure that you invest in the best unit link insurance plan.

But before we can start how to select a unit link insurance plan, let understand how it works.

How do unit link insurance plans work? 

ULIP insurance works on a simple policy where you and all other investors in your portfolio pay the premium to the insurance provider. As we all know that insurance providers have fund managers who invest the money in equity or balance. Later the fund manager will divide the entire financial corpus into equal parts. The insurance provider will provide specific units to all the investors depending on the amount of their investment. The value of each unit is termed NAV or Net Asset Value. Depending on the appreciation or depreciation of the funds, the NAV increase or decreases.

Unfortunately, if the investor dies during the plan, the insurance provider will provide a sum assured or pay depending on the NAV.

So, now you know how ULIP’s work, so let’s understand how you should find the best saving plans for your funds.

Things to consider while selecting the best ULIP plans:

Selecting ULIP Plans based on goals:

A life without challenges is tasteless; similarly, an investment without a goal is aimless. So, you need to decide whether you want a long term or short term investment. Depending on your goals, you can decide whether to invest in debt or equity funds.

Why you should stay invested for the long term in ULIP plans:

Just like life insurance unit link insurance plan is also a perfect wealth creation insurance policy where you have to stay invested for the long term to boost your wealth.

Tax-Benefits:

According to the income tax act, 1961 unit link insurance plan falls under the tax exemption benefits to all the investors. You get a tax benefit when you make the first payment of your premium. Likewise, the money growth in unit link insurance plan also exempts tax. You also get tax exemption during maturity.

Flexibility:

One of the best advantages of joining a ULIP scheme is you get a chance to diversify and customize your portfolio as your money grows. You can reinvest your funds on your choice.

Partial withdrawals:

Although ULIP is great if you stay invested long-term, you can also make partial withdrawals when you want emergency funds.

When you are purchasing a unit link insurance plan, it is essential to go through all the features and benefits of your policy.