Should one invest in ULIP’s

ULIP’s were the most widely sold insurance products some time back. As they served a dual purpose of being market driven as well as giving insurance. They even gave mutual funds a run for their money. Why did this happen, only one reason, the commissions for the agents were good, whereas commissions were stopped for distributors. It was a good sale for the insurance companies as well with very low regulation. This also led to a lot of mis-selling. This is when IRDA stepped in and brought many changes. With changes made by IRDA, the playing field between ULIP’s and Mutual funds has almost become level.

Though the field has almost become level, people have stopped buying ULIP’s as because of mis-selling, people are scared of getting duped again. But now with the changes there is money to be made in ULIP’s as well. Many financial planners would say do not mix insurance with investment. But if you look at ULIP’s only as investment also makes sense, look at it from long term investment point of view.

The biggest advantage of ULIP’s is tax; we keep shifting funds from debt to equity and vice-versa depending on the portfolio value and your requirements. When you do that, you need to sell, and every sale has got tax attached to it. Though tax is not applicable on sale on equity mutual funds after a year, there is tax applicable for debt mutual funds. But in case ULIP’s since there is no sale of units, there is no tax involved. Also maturity proceeds are tax free as long as the premium amount is 10% or less of the insured value.

Most ULIP’s allow shifting of units free of cost certain number of times a year. Though most of you might not do it that often, you should do it at least once a year. Also as you near maturity, start moving from equity to debt, this will help, if there is a sudden crash in the equity market. Looking at the advantages, on should definitely go for ULIP’s but only as supplementary insurance and more from an investment angle.