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Is ULIP a Complex Financial Product?

No, ULIP plans are well-known majorly due to good investment returns, ULIP tax benefits, and ability to manage portfolios, among other advantages of ULIPs. ULIP is a good investment plan.

  • Mar 16, 2022

The straightforward answer to this question is No! Unit Linked Insurance Plan or ULIP is not a complex financial product. It is only different from the traditional insurance products, which makes it unique for policy buyers to understand. ULIP is a financial product that provides risk coverage (Insurance) along with investment opportunities in market products like Bonds, Debts, Equities, Mutual Funds, etc. to maximize an individual’s financial growth. ULIP plans are well-known majorly due to good investment returns, ULIP tax benefits, and ability to manage portfolios, among other advantages of ULIPs.

ULIP = Insurance + Market Investments

ULIP seems to be a tricky financial product, because through a ULIP policy an individual gets access to both life insurance and market products like mutual funds, debentures, equities, etc., which in themselves are complex financial products. It has been noted that very often ULIPs are compared with other financial products like mutual funds and simple term insurance plans, which is wrong.

ULIP being a combination of different financial insurance and investment products needs a deep understanding of all such financial products and policy matters. In addition to this, while investing in ULIP policy you also need to emphasize on your financial needs and goals and pick a policy accordingly.

So, it is suggested that before making a decision to invest in a ULIP policy, one should consult an insurance agent and discuss in detail all the important details and policies of ULIPs offered by different companies, and then decide which fits best to your needs.

Important Topics of ULIP Document You Should Read Carefully

As you must have seen in many advertisements and in general also, it is advised to go through the documents of any investment plan as many of them are subject to market risk and have varied policies that you as an investor should know. So here are some important parts of the ULIP policy document that one should carefully read:

1. Administration charges of the policy

2. Allocation charges

3. Redemption charges

4. Policy switching charges

5. Policy returns guidelines

In addition to this, financial experts and advisors highly recommend that you take time and go through all the policy-related documents thoroughly before making an investment move.

ULIP vs Mutual Funds (MFs)

Very often ULIPs are compared with mutual funds (MFs), in day-to-day life and due to lack of financial awareness. Let’s understand in brief, how ULIPs are different from MFs?

The major point that differentiates ULIPs from Mutual Funds is that the MFs don’t offer insurance cover along with investment opportunities. Also, not all mutual funds give you tax benefits, whereas most ULIPs serve as a one-time investment plan with tax benefits.

ULIP Tax Benefits

Compared to other investments, ULIP taxation benefits are a wise consideration. The premiums paid on ULIP policies are eligible under 80C deduction for a sum of up to ₹1.5 Lakhs in one financial year. In addition to this, another ULIP tax benefit is that the amount you receive on maturity of the ULIP plan is exempted from tax under section 10 (10D).

Advantages of ULIPs

  • Safety of insurance
  • Benefits of Return on investment in accordance to market growth
  • Access to personal portfolio for tracking growth
  • Ability to manage investments as desired, etc.

Thus, in conclusion, if you’re looking for one-time investment plans with tax benefits, ULIP is your investment destination. ULIP taxation benefits along with other advantages make it one of the best investment options for you.

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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Ref. No. KLI/22-23/E-BB/521


- A Consumer Education Initiative series by Kotak Life

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