Investments today include more than buying shares or mutual funds or investing in fixed deposits (FDs). Modern investors look for financial products that provide multiple benefits. Unit-Linked Insurance Plans (ULIPs) are one of the preferred investment options for investors who want to combine returns with an insurance cover.
What are ULIPs?
The first question to arise in your mind must be “what is ULIP”? It is a type of insurance policy that also offers the opportunity to invest. A portion of the premium is invested in market-related assets to earn returns over the long-term.
ULIPs can help you meet long-term financial goals like children’s higher education or wedding, your retirement planning, or buying a home. Part of the premium gets invested in different products like equity, debt, and or a combination of both types of market-linked funds.
ULIPs provide many advantages, and here are five reasons to include them in your investment portfolio:
- Dual benefits to maximize returns
These plans provide insurance cover that ensures economic security to your family if something untoward happens to you. Additionally, market-linked instruments offer returns on investment, helping you build a corpus over the long term.
The plan pays the benefits to your nominees in case of your sudden absence during the policy duration. You can choose the sum assured (SA) when you buy the policy. Some insurers let you enhance the SA as your financial goals change over the years based on your life stage.
- Flexibility and ease of investing
You can choose the premium while buying the ULIP. Additionally, you can pick the types of investments that you want to invest in based on your monetary objectives and risk profile. Experienced fund managers ensure that your money is invested to deliver maximum returns. Moreover, you can choose one or more types of financial products to invest your savings. Most insurers permit you to move your funds between asset classes based on your preferences and goals. You can use a ULIP returns calculator to determine the approximate earnings based on your chosen investments.
- Tax benefits
ULIPs are exempt-exempt-exempt products, which means the principal, interest, and maturity benefits are exempt from tax. An amount of up to INR 1.5 lakh paid as ULIP premium is tax-deductible under Section 80C of the Income Tax Act, 1961. Additionally, the maturity benefits are tax-free as per Section 10(10D) of the Act.
- Wealth creation over the long-term
ULIPs have a minimum lock-in period of five years during which you cannot discontinue or withdraw the accumulated corpus. You need to pay the premium during the lock-in period. This allows you to enjoy the power of compounding over the long term, which can help you build a sizable corpus at the end of the policy duration. A longer investment horizon enables you to ride through short-term market fluctuations, earn higher returns, and meet your long-term financial objectives.
- Lower risk
When you invest in ULIPs, you can allocate your investments in different asset classes. Therefore, you can reduce investment risk through diversification. So, if a particular asset is not performing well, the performance of other investments can decrease the possible loss. Additionally, you can switch between asset classes if your chosen fund is not performing as per your expectations. You can use a ULIP returns calculator to estimate your earnings at different rates.
Life is uncertain, and most people choose an insurance policy to provide financial protection to their family in their sudden absence. Why not earn some returns on the insurance premium? In this investment avenue, the insurer invests a certain portion of the total premium to deliver lucrative ULIP plan returns over the policy duration. If you do not have a ULIP in your investment portfolio, avoid further delay, and get one today. You can check the ULIP plans returns delivered by different insurers over the years to compare and make the right decision.
