Hyderabad: Some insurance policies provide hybrid opportunities in addition to financial protection in case of unexpected eventualities. The Unit-Linked Insurance Policies (ULIPs) provide an opportunity to invest in the stock market thereby to enhance your wealth. Many opt for these ULIPs to get income tax exemption. Let's find out what precautions should be taken before taking these.
ULIPs can be termed as hybrid schemes that combine the benefits of insurance, investment and tax savings. The premium paid by the insured is divided into parts. Some amount is invested in the insurance cover and the rest is diverted to the funds of the policy holder's choice. The premium paid is tax deductible to the extent of section 80C limit (Rs. 1,50,000).
The maturity amount of ULIPs with an annual premium of less than Rs 2.5 lakhs in a financial year is exempt from tax under Section 80CCD. It is never advisable to opt for ULIPs just for tax savings. These are useful for the achievement of an individual's overall financial goals.
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In a ULIP policy, the nominee gets compensation in case something unexpected happens to the insurance policyholder. You have to decide the policy amount while taking the ULIP. It should be noted here that the head of the family should be covered by the insurance policy in case of unfortunate incidents. That is, the policy should be taken for the required amount so that the family does not face financial difficulties. If the policy holder does not face any problem.. the policy should be chosen in such a way that the mortality charges are reimbursed after the expiry of the term.
Different types of charges are collected under the ULIPs. These charges cover policy maintenance, premium allocation, fund management, top-up, mortality, supplementary policies, mid-premium stoppage, etc. Depending on the insurers, the charges vary. Before approaching an insurance company for a policy, we have to fully understand these fees.
We should take note that our profits will be affected depending on how much of the premium is paid towards these components. The new generation of ULIPs generally have lower fees. Since ULIPs are long term schemes, we should thoroughly check the credibility of the company and the claim payment history before taking them.
The policy holder should consider his risk taking ability before choosing the investment schemes in ULIPs. Those who fear loss should prefer debt schemes. Those looking for good returns can look into equities. Hybrid funds can also be chosen as a mixture of equities and debt funds. You should go for policies that suit your goals. The performance and past history of the funds should be checked carefully.
