ULIPs or United Link Insurance Plan offers the dual benefit of life coverage and investment that can generate high returns simultaneously. Let’s know more about these and why you should invest in ULIP. Keep reading.
It’s rare in financial planning when you can hit two targets with the same arrow. However, ULIP is one investment cum insurance tool that allows you to do it. Let’s dive deeper into this and why it makes sense for you.
What is a ULIP?
ULIP or “Unit Linked Insurance Plan’ is one of the many beneficial insurance instruments that offer the dual benefits of insurance and the possibility of capital gains over the invested period.
How does a ULIP Work?
ULIP can provide long-term gains out of investment and the protection of funds. On buying a ULIP, the policyholder pays the premium bifurcated into two parts – the premium payment towards life insurance coverage and another part towards investing in market-linked instruments.
The ULIP investment is handled by the insurance provider, and its gains are derived from the market-linked returns. After the lock-in period of 3 years, the policyholder can retain the investment fully or partially.
ULIPs are liquid and should be invested for long for consistent gains.
Benefits of ULIP
Read ahead to know the 4 good reasons to invest in ULIPs –
1. Offers Flexibility
ULIP premiums come with the option of flexible payment. The demarcation of funds can also be customized. The money can be shuttled between debt funds and equity, as per the preference and risk appetite. Partial funds can be withdrawn whenever required.
Furthermore, ULIPS are flexible in terms of –
- Choosing the sum assured right at the time of purchasing the policy
- Increasing the sum assured over the period of time for regular benefits
- Changing the premium amount
- Opting for a rider (accident or disability benefit) that would customize the plan for added protection
2. Brings Transparency
ULIP plans offer complete transparency and help investors make informed decisions. The policyholder can –
- Ask for illustrations of sales benefits for knowing the policy charges, premium usage, and tentative returns.
- Demand policy brochures and documents listing key features.
- Avail free-look period of 15 days for understanding the policy. If not satisfied, then the policy can be cancelled during this period.
- Monitor the policy regularly with the help of the company’s daily updates.
3. Grows Savings
As discussed earlier, the ULIP plan is a long-term investment that helps meet specific goals like buying property, children’s higher education, or building a comfortable retirement corpus. This investment plan helps in –
- Meeting major financial goals
- Investing regularly and consistently
- Saving for long-term without compromising the short-term financial needs
4. Offers Tax Benefits
ULIP plans are tax-efficient, bringing tax rebates at multiple stages of policy. Your ULIP policy can fetch you tax benefits on –
- Premium payment right at the entry stage (via Section 80C and Section 80D)
- Maturity amount towards the end stage of the policy (under Section 10 (10D))
ULIP plan is a helpful investment instrument that inculcates the habit of systematic saving. Invest in a ULIP and take advantage of market-linked growth and life coverage without actively trading in equity on the stock market.