Unit linked Insurance Plans (ULIP) premiums are payable for a specified period usually 3, 5 or even 10 years.
1) Tax benefit
ULIPs, offer you tax benefit under Sec 80C of the Income Tax Act. If you are already having a tax liability, it does not make sense to stop the ULIP.
If you in the 20 and 30 per cent tax bracket, it could help save enormous amounts.
You get 10 times the amount of premium paid annually as insurance cover. So, if you are paying a premium of Rs 1 lakh. You would get an insurance cover for Rs 10 lakhs.
3) Can earn higher returns
If you have opted for equity market related schemes, your return could be much higher. O f course, these are market related risks and your returns could be lower as well.
What happens when you do not pay the ULIP premium?
On default or lapse of your premium, your insurance cover would cease to exist. This means that your nominee would not get death benefits in case the insured dies.
2) Loss of money
For those who do not pay the premium and close before 1 year, the entire amount paid during the year would be lost.
3) NAV on date of surrender
If you surrender after 1 year, remember there is a lock-in period. So, what would happens is that you would get at the NAV on the date of surrender.
Let us say that your ULIP policy has a lock-in of up to April 2017 and you surrender the same in April 2016. You would get the NAV of April 2016.
4) All charges would be deducted
If you do not pay the ULIP premium, all charges like management charges, fund management charges etc., would apply.
5) Death benefit
You would receive only the value of the fund on the date of surrender. No insurance. This is one severe consequence of not paying the ULIP premium.
6) Lock-in period
It is important to remember that there is a lock-in period for ULIPs and you cannot withdraw the amount in any case.
It is not advisable to withdraw your money from a ULIP. You should continue to invest, as the returns could be higher as long term investment pays. What we suggest that you need to keep a perspective of at least 3-5 years in mind to get good returns from the Unit LinkedInsurance Plan.
You have a choice to select from stock market related or debt instruments, when allocation money to the fund.
The only disadvantage of the ULIP is that there are two many allocations and charges, which tend to reduce your returns.