The advantages of life insurance and investing are combined in a financial tool known as a unit-linked insurance plan (ULIP). When something tragic happens, the life cover* ensures your loved ones’ financial security and the investment aids in your monetary aspirations.
Depending on your risk tolerance, a ULIP can allocate your investments between high-yielding stock funds and safer debt funds. You can swap between funds and earn returns matching your objectives and needs.
You have total control over your investments with ULIPs. Because of this, ULIPs are a great way to save for the future, whether that is a house, college for a child, retirement, or anything else you may think of. Are you still unsure of the advantages of ULIP investing? This post will give you 5 solid reasons for that.
1. Providing Two Benefits in One Package
The Unit-Linked Insurance Plan (ULIP) is unique among India‘s financial products since it combines life insurance security with savings growth potential. In order to guarantee your future, you do not need to purchase separate insurance and investment plans.
This considerably reduces the cost of the corresponding premiums and helps in better money management.
2. Exemptions from Taxes
Under the Income Tax Act’s Section 80 C, investors can claim a tax deduction for contributions to ULIPs. An investor’s ULIP investments are eligible for tax benefits of up to Rs.1,50,000 per year.
The returns you receive when your ULIP policy expires are tax-free under Section 10D of the Income Tax Act, which operates similarly. If the policyholder dies, the nominee will get the death benefit. This amount is not taxable under the Income Tax Act’s Section 10 (10D).
3. Adaptable Investment Alternatives & Gains from Long-Term
ULIPs provide a variety of investing possibilities. This adaptability manifests as.
Switching Fund:
Depending on how much risk you will take with your money, you can switch your holdings between equities, debt, and balanced funds.
You can expand your exposure to equities funds if you seek a high-risk investment strategy. You can change your investments into debt or balanced funds to lower your risks.
One can benefit from long-term growth by making regular ULIP premium payments over time. This will allow you to keep your money in the market for a longer period of time while earning higher returns.
If you have a plan, you might use the money from your ULIP to pay for things like your children’s education expenses or a down payment on a home.
4. Options for Top-up and greater Potential for Returns
Top-up options allow you to add more money to your existing savings. Premium redirection allows you to choose which funds to put your future premium payments into.
There is more room for growth in ULIP returns than in most other types of investments. The adaptability of equity and loan capital allows for such successful outcomes. Similarly, “staying invested” with ULIPs gives you various perks and advantages. Insurance firms offer incentives for loyalty or financial growth.
5. Sum Assured and The Lock-In Period Withdrawal Facility
If the insured were to die during the insurance period, the investment in the ULIP would pay out a specified death benefit to the beneficiary. ThisĀ “sum assured” is not deductible for tax purposes.
Most investments have a lock-in period when you cannot take any of your money. But even throughout the lock-in period, you can use your ULIP advantages. However, if you withdraw within the lock-in period, the amount you get will be reduced by the applicable fees and deductions.
Considerations Before Purchasing a ULIP
Funds’ Performance
Market risk is a factor for those who invest in ULIPs. Therefore, your investments (whether stock, balanced, or debt) may be impacted by market fluctuations. Therefore, before placing your investments, evaluate the past performance of these products against the pertinent market benchmarks. A review of the fund’s performance helps you decide how much risk you’re willing to take with your ULIP investment.
The ratio of Claim Settlement
The term “claim settlement ratio” refers to the rate at which a ULIP company pays out claims. The higher the ratio, the more money you can cash in on when your ULIP finally matures.
Conclusion
Remember that because a ULIP is a form of life insurance, purchasing one at a younger age can sometimes result in a more affordable premium. Your investing horizon will be longer if you start early, giving your funds more time to develop. So, avoid waiting and begin investing in ULIPs as soon as possible.