As one integrated plan, the protection part and the investment part can be managed depending on the specific choices and needs.
What is ULIP (Unit Linked Plan)?
ULIP or Unit Linked Plan is a type of Insurance, which combines the benefits of protection and saving in a single plan. The major advantage that a ULIP has over the traditional wealth creation tools is the benefit of a Life Cover. As a result, your money can grow and at the same time, your loved one’s future is protected from life’s unexpected turns.
A unit linked plan (ULIP) is a multi-faceted product issued by insurance companies that combine insurance coverage and investment exposure in a single offering.
This product requires policyholders to make regular premium payments, part of which are utilized to provide insurance coverage, while the remaining portions are pooled with assets from other policyholders, then invested in equity and debt instruments, much like mutual funds.
Why you should buy ULIP?
- Life cover: First and foremost, with ULIPs you get a life cover coupled with investment. It offers security that a taxpayer’s family can fall back on in case of emergencies like the untimely death of the taxpayer, etc.
- The flexibility of a portfolio switch: As already mentioned, ULIPS are usually designed in a way that they allow you to switch your portfolio between debt and equity based on your risk appetite as well as your knowledge of how the market is performing. Insurance companies, on the other hand, allow a very few numbers of switches free of cost.
- Income tax benefits: Not many are aware that the premium paid towards a ULIP is eligible for a tax deduction under Section 80C. Additionally, the returns out of the policy on maturity are exempt from income tax under Section 10(10D) of the Income-tax Act. This is a dual benefit that you can claim with this policy.
- Finance Long Term Goals: If you have long-term goals like buying a house, a new car, marriage, etc., then ULIP is a good investment option because the money gets compounded. As a result, the net returns are generally more. This stands true even if you want to exit after the 5 year lock-in period in comparison to not having invested the amount at all and retaining it in a savings account or in the form of an FD. But, under ULIP, the mantra is to always keep the policy going for a longer time horizon to reap the best out of it.
Benefits of ULIPs
- Life Protection, Savings, and Investment: Investing in ULIPs helps to inculcate the habit of saving and investing, both of which are essential for building long term wealth. ULIPs offer dual benefit of a life insurance cover as well as savings at market-linked returns. With the feeling of peace of having life protection, one can invest in a range of market funds to earn a high rate of return.
- Market-linked Returns: ULIP plans present an opportunity to earn market linked returns. A part of the premium paid in a ULIP plan in invested in funds which invest in different market instruments including debt and equity in varying proportions. The policyholder stands a chance to earn returns based on the market. Investors can use the data such as the ULIP NAV to keep a tab on returns and ensure they stay invested in the best ULIP plans.
- Investment and Insurance Benefits: Unit Linked Plan offers the triple benefits of investment, life cover, and tax savings. Meaning that the investor gets to benefit from a comprehensive life cover based on his/her preferences and budget and reap market-linked returns on his/her investment.
- Death Benefits: A unit-linked plan offers death benefits in case of the death of the insured during the policy term. While the death benefits are catered to as SA together with the value of the fund, benefits may differ based on the cause of the demise of the insured.
- Maturity Benefits: A ULIP plan also comes packed with maturity benefits in case the policyholder endures the maturity period of the plan. Usually, maturity benefits are catered to the insured as the sum of the value of the fund. Nevertheless, some insurance companies may cater to add-on benefits based on the terms and conditions.
- Long-term Investment Benefits: A ULIP plan is one of the most sought-after investment instruments for the ones who are seeking to earn maximum returns on the investments they make in the long-term. It is vital to understand that the market volatility and fluctuations may have an impact on the returns in the short-term. Instead, keeping the investment for a longer period makes it easy for the investors to deal with the market volatility and earn a high rate of return on the investment. A unit-linked insurance plan allows for long-term investments and makes it simpler for the investors to reap the maximum returns on the investments.
- Withdrawal Benefits: A unit-linked insurance plan comes handy in such situations. A ULIP plan allows its investors to withdraw a portion of the investments in case of emergency, after the completion of a pre-determined timeline. Generally, such withdrawals are tax-free.
- Tax Deductions Benefits: ULIPs allow tax is invested in a ULIP is deductible from one’s, reducing the money owed to the government by way of income tax.