The investment industry has taken a serious hit in the past few months due to the pandemic. The market has been lower by almost 30 per cent, and the most investment values have degraded. The scenario is no different for ULIP investment plans as well.

For those of you who don’t know what is ULIP policy, let us give you a quick overview. Unit Linked Insurance Plans or ULIPs are an insurance instrument that offers dual benefits of life insurance cover and investment. Here, a part of the premium is paid towards life insurance cover; whereas the remaining amount is invested in market-linked funds.

The returns generated on the policy are completely dependent on the market performance of the ULIP funds. Hence, it is vital to evaluate the market situation, your current financial situation, expenses, and future financial goals before investing in ULIPs.

But what happens when the market is down due to a global pandemic-like situation? What about the investors who have ULIPs that are maturing during such times?

Since the market scenarios at present are no different, investors with ULIPs that are maturing during this time will be the most affected. To tackle this issue, the Insurance Regulatory and Development Authority of India (IRDAI) has asked the insurers to offer a sub-option under the settlement option. Investors now have the liberty to either withdraw the maturity amount now or at a later date.

With this IRDAI announcement, the investors are at a relief, especially the ones who have their ULIP investment plan maturity in these times. This decision was taken to help ULIP investors to receive a desirable return when the stock market is a little stable. So, if your ULIP is maturing any time soon, you can either choose to withdraw the money or wait for the market conditions to improve and then make a withdrawal.

The IRDAI has informed all the insurers to make this facility available under the Settlement Option, even if the existing terms and conditions of the policy do not mention this provision. With this facility, ULIP investors have an option to remain invested in the plan for another five years and make withdrawals as and when needed.

Also, the insurer is liable to explain the downside of using this facility to the investors. It may so happen that the fund values may deplete even further than they are now, and one needs to evaluate this possibility as well. Hence, before making any decision, it is important to evaluate your ULIP investment.

If you observe that the market fluctuations have not affected your portfolio much, then you should proceed with the settlement option. However, in case the market fluctuation has severely affected your ULIPs, then you can remain invested and wait for a few years for the market to heal. The only risk here is if the market goes down further, the fund value will erode again. Hence, it is necessary to make an informed decision and consult a financial advisor before choosing this facility.

Should I Invest In ULIPs?

Market fluctuations are quite common. But the ULIP benefits remain the same. The following are a few ULIP benefits that you should know about –

  • ULIPs offer dual benefits of life insurance cover and wealth creation all under a single policy.
  • ULIPs give you the liberty to invest in funds of your choice. You can invest in debt funds, equity funds, or a combination of the two. You should make investments depending on your risk appetite. Those with a low-risk appetite should consider investing in debt funds. Others with a high-risk appetite can invest in equity-oriented funds.
  • The policy offers a fund switching facility. That way, you can make changes to your investment portfolio depending on the market performance of the funds.
  • ULIPs offer tax benefits on the premiums paid toward the policy. The amount can be claimed for tax deductions under Section 80C of the Income Tax Act. Moreover, the death and maturity benefits of the policy are tax-free under Section 10(10D).

Lastly, you should invest in long-term ULIPs as they help you accomplish your future financial goals in time. Make sure that you are evaluating and aligning your current financial situation, expenses, and future goals before investing in long-term ULIPs.

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