With a new financial year, comes the opportunity to invest your hard-earned money into lucrative financial options. But these investment tools should offer you good returns as well as enable tax-saving. So, what is a better option than ULIP policies that satisfy both these criteria? This policy is a unique insurance plan that gives a dual advantage of a life cover and an investment option. So, keep reading to learn how you can choose the best ULIP policy in FY 21-22.
Types of ULIPs:
Let’s understand the types of ULIPs that you can opt for based on the investment fund:
- Equity fund
This fund type enables you to invest a part of your premium in market-linked instruments such as company shares to earn high returns. To opt for an equity fund option, you need to have a high-risk appetite as the market is very volatile and returns depend on the market movement. Usually, it is recommended to choose the equity fund type when you are younger as you can afford to take more risk.
- Debt funds
Debt funds are an option that you can pick in case you have a low-risk appetite. Your money is then invested in debt instruments that offer moderate to low returns. As you grow older, the proportion of debt investment needs to increase, as you cannot take higher risks. But if your goal is to earn stable income without much risk exposure, then debt funds ULIP is for you.
Things to Consider for Purchasing the Best ULIP Policy
Go through the below-mentioned key pointers to help you choose the best ULIP for FY 21-22:
- Understand your risk appetite
As you have already read above, there are three fund options that you can choose from while investing in ULIPs. Thus, it is crucial to know how much risk you can take to help you plan the long-term returns. Though ULIPs allow you to switch funds during the policy term, it is recommended to use this feature wisely. To learn how much returns you can earn from your insurance plan, make use of the free ULIP return calculator available online.
- Estimate your family’s needs
Though ULIPs are popularly known for the investment component, you also get a life cover under the policy. Therefore, you must pick the right amount of coverage and make the most of the sum assured. As this corpus shall function as a financial backup for your loved ones, estimate the various expenses, debts, future requirements, etc. to get an idea about the risk cover.
- Map out your life-stage goals
While investing your money, you must have certain goals in place that you want to fulfil with your ULIP plans returns. Hence, such life-stage goals will enable you to select the right fund option and the policy tenure. You can switch the investment type later in the term as you age to lower the risk exposure. But this will be possible only if you map out your life-stage goals for the long term.
- Know the tax implications
You can claim tax benefits on the premium, death and maturity payout under the respective tax sections. However, your annual premium needs to be less than INR 2.5 Lakh to claim the maturity benefit as tax-free. If the premium is more than the capped limit, your returns shall be treated as capital gains and taxed accordingly. But this is only applicable to newly bought ULIP plans.
With this, you are now aware of ULIP funds to help purchase the most suitable ULIP policy for FY 21-22. Make sure to read the terms and conditions as well as the exclusions before finalising the plan. To earn lucrative returns from your insurance policy, it is advised to stay invested for the long term and avoid exiting the plan early. To understand this better, use a ULIP return calculator to compare the returns over the policy tenure.