Life Insurance is a long-term product and Unit-Linked Insurance Plans (Ulips) are no different. Unfortunately, some customers have bought Ulips with a short-term objective in mind, and in the volatile market conditions, they press the panic button and surrender the policies or discontinue payment of premiums. This action is detrimental to the financial health of the policy holder. It is important to keep the Ulip policy in force for the entire term by paying premium regularly.
Importance Of Cover
You will lose the insurance cover on discontinuance or surrender of the policy. Please remember that you are losing not only the investment benefits, but also the insurance cover. To keep your insurance cover at the same level, you need to purchase another insurance policy, which may come at a higher cost than the mortality charges deducted from units. Another option frequently exercised is discontinuing paying the premiums after the mandatory period and continuing to hold the policy. In such cases, you have to remember that the sufficient fund value should exist in the policy to cover the mortality charges for life cover to be maintained. The policy will be terminated if the fund value goes below the threshold limit prescribed by the insurer. The mortality rates will be available in the policy document.
Persistency/Bonus Units
Some of the Ulip plans offer bonus units in the form of additional units. They will be credited to your fund account at the time of maturity or after keeping the policy in force for a certain period. Discontinued policies are not eligible for this benefit.
No Short-Term Play
Do not treat Ulips as high yielding short-term investments. Investment returns can turn negative in the short term, thereby reducing the value of your portfolio. Purchase Ulips by aligning them with your long-term objectives and stay put in the policy for the entire term.
Don't Surrender If Market Crashes
Most policy holders surrender their policies while the market has crashed. On the contrary, it is the best time to pay the premium for a long term product. Premiums paid while the market is at lower levels, purchase more units at a lower NAV. As the market goes up and NAV increases, the fund value increases.
Higher Charges In Initial Yrs
Insurers incur high costs for policy acquisition. These costs are recovered from the premiums paid during the initial years. As the tenure increases, these costs reduce drastically. As the higher costs have already been paid, it will be beneficial for you to reap the benefits of higher allocation to invest in the later years.
Use Partial Withdrawals For Emergencies
Another reason for discontinuance or surrender of Ulips is emergency fund requirements. Look for alternative financing options rather than surrendering a Ulip. If no other alternative is available, use options like partial withdrawals and keep paying premiums. This will maintain the risk cover and also keep you aligned to your goal.
Spread Your Investible Amount Across The Funds
Ulips offer various fund options to select. If you are not an aggressive investor, spread your funds across equity, balanced and debt funds as offered by the insurer. Also remember to align your fund portfolio to suit your investment profile and Life Style.
Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online
Tax Saving Mutual Funds Online
These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs
Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
- HDFC TaxSaver
- ICICI Prudential Tax Plan
- DSP BlackRock Tax Saver Fund
- Birla Sun Life Tax Relief '96
- Reliance Tax Saver (ELSS) Fund
- IDFC Tax Advantage (ELSS) Fund
- SBI Magnum Tax Gain Scheme 1993
- Sundaram Tax Saver
