Yet, if you understand how a Ulip works and are ready to bear the high charges, you can use the policy to your advantage. It also suits investors looking for the convenience of triple benefits in one product.
The September 2010 guidelines for Ulips have removed some of the reasons that were responsible for the mis-selling of these policies. Not only have the charges been reduced, but the mandatory lock-in period has been extended from three to five years. In the coming months, the Direct Taxes Code will usher in more changes. The insurance aspect of the policy will become more prominent. Also, a policyholder will have to remain invested for the long-term if he wants the tax benefits.
Even if one of these is answered with a 'No', reconsider your decision to buy a unit-linked insurance plan.you are ready to pay for the convenience of a bundled product
All these can be achieved through separate investments at a lower cost. Mutual funds are a simpler and cheaper option for wealth creation. Save tax through 5-year bank FDs or PPF. And buy a term plan for a bigger insurance cover.
You know how to use the switching facility
The switching facility in a Ulip is a key feature that differentiates it from a mutual fund. You can use it to shift money from debt to equity, and vice versa, depending on your expectations of the market movement. An investor who proactively changed his allocation to equities would have earned higher returns than one who kept a static asset allocation during the past 12 months.
You can afford to pay the premium for the entire term
As mentioned earlier, it is important to continue investing in a Ulip through the term of the plan. Of course, this is possible only if the premium is at a reasonable level. If it is very high, the policyholder may find it difficult to pay it year after year. Buy a policy that you can continue without interrupting on other financial commitments.
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