When people begin their investment journey, they find it difficult to buy life insurance and make investments alongside. Since most people have expenses for themselves and their loved ones to take care of, savings becomes difficult. Thankfully, there are insurance products such as Unit Linked Insurance Plans (ULIP) in the market which provide you with the dual benefit of insurance and investment. What is a ULIP policy? A ULIP is a type of life insurance where the premiums you pay are partly used towards providing you with a life cover and partly used as investments. This ensures that you get a life cover along with returns on investments. From an investment point of view, ULIP has lots to offer, making it the perfect investment option for all investors.
Here is how ULIP satisfies all investors-
- Provides different funds based on your risk appetite
One of the biggest benefits of ULIP is that you can choose where do you want to put your money. Based on your ability to take risks, you can choose to allocate your funds in equity, debt, and balanced funds. Equity funds are a risky option, where the funds are invested in equity markets. Their high risks are often rewarded with high returns. If an investor is looking for a safer option instead, they can choose to invest in debt funds. Debt funds are low-risk investments as the money is invested in corporate and government bonds. Here, the risk is low, and the returns are also low, when compared with equity funds. If an investor wants to invest in equity funds but is afraid to take the risk with all their funds, they can choose a balanced fund instead. In balanced funds, your money is invested partly in equity funds and partly in debt funds. This ensures that the risk is moderate and so are the returns. Whatever is your risk appetite as an investor, ULIP gives you the option to allocate your funds accordingly.
- Flexibility to switch amongst funds
Your risk appetite may change depending upon which stage of your life you are in. in your 20s, you would have invested in equity funds of ULIP, but now, you may have a family and may be looking for a safer option. Or you may have invested in debt funds, since you have children to look after. Or they may now be financially independent, which means that you can take risks with your investments. With your changing stages of life and risk-ability, ULIP allows you to switch your investments anytime you want. You can switch between debt funds to equity funds and vice versa. This also enables you to make the most of the market fluctuations as an investor. The ability to switch between funds is one of the benefits of ULIP, which rarely any other financial instrument can offer.
- Enables wealth generation in the long haul
The long-term goals of most individuals include buying a new house, paying for their children’s education, travelling to their dream destination, or planning their retirement years. These long-term goals require individuals to save in a disciplined manner. With ULIP, you are making recurring investments and when your plan matures, the money will come in handy to meet your long-term goals. A ULIP encourages goal-based savings where you invest in a disciplined manner. Also, staying invested in ULIP in the long haul increases the benefits because of the power of compounding.
- Several tax benefits for investors
ULIP is a type of life insurance with an investment component attached to it. When you are investing and building your portfolio, along with the risks involved and the estimated returns, you should also check the tax implications of your investments. This is where a ULIP benefits investors of all kinds. The premiums that you pay for your ULIPs are exempt from taxes under section 80C of the Income Tax Act. Also, even though ULIP is a market-linked investment, the maturity amount is tax-free as per section 10 (10D) of the Income Tax Act. Also, in case you urgently need funds, you can avail of partial withdrawals from your ULIP after the lock-in period, which is usually five years. These partial withdrawals are also exempt from taxes if you are withdrawing the money after five years.
ULIPs are quite beneficial over most traditional insurance plans and financial instruments. With a ULIP, under a single instrument, you get a life cover, investments, and tax benefits.