A Unit Linked Insurance Plan (ULIP) is a unique life insurance plan. As with other life plans, it offers life insurance but what makes it stand out is that it offers investment opportunities also. It allows an individual to fulfil two main financial goals under a single plan.
The premiums that you pay for the plan are partly used for providing you with a life cover and partially invested in funds of your choice. You can choose the funds you want to invest in based on your risk appetite. Over the years, individuals have gained more information about ULIPs and the popularity of the plan has increased significantly.
When you are managing your finances, you will often find yourself in the dilemma of investing, saving, or securing your funds. If you buy life insurance and an investment plan separately, you might struggle to arrange funds for both regularly. With ULIPs, you can be relieved since both your major financial needs have been taken care of under a single plan. From the life insurance point of view, ULIP works like any other life insurance. If within the duration of the policy, anything was to happen to the policyholder, the nominee will receive the sum assured. The investment component of a ULIP benefits an individual tremendously. Here are the key 4 reasons why you should consider investing in ULIP:
- It offers a variety of investment options
When you are investing in a ULIP, you get to choose the funds in which you want to put your money. An investor can choose from several types of funds based on their investment goal and risk appetite. The several types of fund options can be broadly divided into three categories: equity, debt, and balanced funds. If you are looking for a risk-averse investment, debt funds would be a suitable option for you. Whereas, if you are looking for an investment that offers high interest in the long haul, equity funds would be your best bet. If you are looking for a moderate-risk fund, there are balanced funds that comprise both, debt and equity. When you are selecting a ULIP investment, track its past performance online to get an estimate of the returns you are likely to earn.
- Wealth creation in the long haul
ULIPs have been designed for the long haul and investors who stay committed to them for years have witnessed high returns on their investments. The reason behind this is that when you stay invested for years, you end up earning returns not only on the principal amount but also on the returns that you had earned in the previous years. If one has been investing in a disciplined approach for 10 years or more, they are likely to earn huge returns in the long haul with compounding. The key here is to stay invested in the long haul and invest with a disciplined approach.
- Allows investors to switch funds anytime
When you are understanding what ULIP is as an investment, you will come across two terms that make the plan stand out from other types of investments. These are premium redirection and fund switching. With fund switching, anytime in the middle of the plan, you can switch your fund allocation from debt to equity or vice versa. While, with premium redirection, if you were earlier investing in debt funds, you can allocate your forthcoming premium towards equity funds, and vice versa. These two features are unique ULIP benefits that help an investor tremendously.
Since ULIP is a long-term product, your risk appetite might evolve over the years, and you would want to switch or redirect your allocation accordingly. Also, if you are unhappy with the returns of your current investment, you can always turn the tables and switch or redirect your funds.
- Tax benefits on several levels
What is ULIP? Even though the investment aspects of the plan are being focused on, it is a type of life insurance. Hence, you get the same benefits that you would with any other life insurance plan. The premiums that you pay towards your ULIP are subjected to tax deductions under Section 80C of the Income Tax Act. The sum assured that the nominee receives in case of the demise of the policyholder is also exempt from taxes under Section 10 (10D) of the Income Tax Act. These are current tax benefits applicable for those who have opted for the old tax regime and are subject to change from time to time as per laws.
The above ULIP benefits make it a unique investment and compel individuals to stay invested in it for the long haul. Before investing in a fund, ensure that you compare several options and then choose the one that suits your needs.
