Unit Linked Insurance Plans (ULIPs) are a unique saving scheme that comes with life insurance protection too. ULIPs are insurance cum saving schemes that provide market linked returns. Understanding about ULIPs and how they work can help you to invest in the right ULIP scheme. In this article we would provide various features and Benefits of investing in Unit Linked Insurance Schemes (ULIP).
What are ULIPs?
Unit Linked Insurance Plans (ULIPs), popularly known as market linked insurance plans helps systematic investments and provide market linked returns beyond risk coverage. ULIPs provide wealth creation for long term goals like a child’s education, buying a dream home, retirement planning etc. Even in case of unforeseen death of the life insured, family would be still able to meet these financial goals with the insurance coverage.
8 Benefits of investing in Unit Linked Insurance Plans (ULIPs)
Here are the key benefits of buying ULIPs.
#1 – Allocation based on risk appetite
One of the best features of ULIPs is that one can consider the type of funds they may like to invest based on their risk appetite.
High risk investors can consider equity funds.
Low risk investors can consider debt funds allocation.
If you are moderate risk investor, you can consider a combination or balanced funds.
In case you are not happy with the allocation you can invest future premiums with different allocation as per your choice.
#2 – Switch Funds
Some investors would have made a mistake of choosing a wrong type of fund. In such case they can switch funds in ULIPs. Majority of the insurance companies allow switching funds during the policy period. In case you feel that stock markets are slowing down, you can move the funds to debt funds. In case you think, equity market would do well for next 10 years, you can allocate money in equity funds.
#3 – Partial Withdrawals from ULIP Investments
Majority of the insurance companies offer partial withdrawals in ULIP investments. In case of any emergency, one can withdraw partial amounts after 5 year lock-in period. Insurance companies might have different terms and conditions on partial withdrawals. One should always check the policy document before opting ULIPs.
#4 – Top-up investments
Individuals would have got yearly bonus amount. They would have received a lump sum amount by way of quarterly incentives. They would have received money from selling a real estate property. Whatever could be the reason, but if they want to invest such surplus, Top-Up in ULIPs can help. One can invest such surplus any time during the year.
#5 – Flexible payment options
Insurance companies are offering flexible payment options in ULIPs. One can invest on regular payment mode like monthly, quarterly, half year and yearly or single premium payment option. Under single premium, one need to pay lump sum once and enjoy risk coverage for the entire tenure of the policy and such investment can grow over a period of time.
#6 – Tax Benefits
There are two income tax benefits in ULIPs.
Premiums paid under ULIPs are exempted from income tax u/s 80C up to Rs 1.5 Lacs per annum. If you are falling in the 30 % tax bracket, one can save a good amount by investing in ULIPs.
The amount received on maturity is also tax free u/s 10 (10D).
These dual benefits can help investors to cut down the tax.
#7 – Disciplined Savings
ULIPs can help in having disciplined savings. In case a policy holder is opting regular premium payment option, they have to pay premium on a regular basis. This would automatically inculcate disciplined savings every year.
#8 – Long Term Growth
ULIPs invests in equity funds or debt funds based on the option chosen by the policyholder. Investment in equity in the long term can create good wealth. While debt funds might generate 5% to 7% annualized returns, investment in equity funds can generate 10% to 12% annualized returns. Hence, investing in ULIP can create a good corpus if invested for the long term.
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