ULIPs are a category of goal-based financial solutions that combine the safety of insurance protection with wealth creation opportunities. In ULIPs, a part of the investment goes towards providing you life cover. The residual portion is invested in a fund which in turn invests in stocks or bonds. The value of investments alters with the performance of the underlying fund opted by you.
ULIPs are wrongly messaged to public by funds as this particular investment type will give both insurance as well as gives good returns over the period of time. But historical data proves it as wrong.
With the premium you are paying to buy these ULIP units if you buy Term policy for insurance coverage and remaining investing in SIP( Systematic Investment plan ) in any good performing mutual fund you would be getting much higher returns than what ULIPs give you. Also you get good insurance coverage with less premium towards term policies
DTC effect on ULIPS:
The first point is exiting before 10 yrs will badly hurt ULIPs holders from cost point, as all the Ulip’s are heavily front loaded and exiting before 10 yrs means the total cost is (commissions) turns out to be too much for you. Only if your total premium per year is less than 5% of the Sum assured, you can save yourself from getting taxed. But most of the ULIP plans in the country will not meet that criteria as majority of the policyholder’s pay much more than 5% of sum assured as premiums. A big number of policies have sum assured as 5 times of the premium, as it’s the minimum requirement of a ULIP policy
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