Uncertainties in life and improper money management can invite financial inconsistencies when we have no control over them. The best way is to stay prepared in a disciplined manner to make way through for indefinite and planned commitments. Unit Linked Investment Plan (ULIP) is a complete solution for an individual seeking insurance plans and investment benefits in a single product.
What is a ULIP investment?
ULIPs are financial investment instruments that offer dual benefits, life insurance cover and investments in the financial markets. The premium paid towards the ULIP is divided into two portions. One portion is used for the life insurance cover, and the other portion is used to buy securities in the money market. ULIP investors have a choice of determining their choice of investments – equity funds (high-risk), hybrid funds (medium risk) and debt funds (low risk), based on their individual risk profile.
What are the advantages of investing in a ULIP Plan?
- Select your investment option:The portion allocated for your investment allows you to choose the type of fund you want to invest in. If you are expecting high returns, you can go for equity funds. However, the risk involved is slightly higher. If you are looking for a low-risk investment, you can buy debt funds and hybrid funds if you can tolerate moderate risk levels. However, the returns will also be lower and moderate, respectively, in these cases.
- Flexibility to switch between investments:ULIP investment allows you to switch between equity, debt and hybrid funds anytime during the policy tenure. Based on the market trend and the extent of returns made, you can always switch between the funds.
- Liquidity:ULIPs have a lock-in period of five years. After five years, if the situation demands, you can go for partial withdrawal and use the money for your requirements.
- Tax Benefit: The premiums paid towards ULIP qualify for tax deduction under Section 80C, and the returns from ULIP is exempt from tax payments under Section 10 (10D) of the Income Tax Act, 1961.
- Additional Riders: Life Insurance Cover is one of the most important advantages of a ULIP. Like any other insurance plan, you can customize ULIP insurance, including additional riders like Critical Illness Rider, Disability Rider etc. For example, when you choose a critical illness rider, you will get paid a portion of the sum assured to pay for your medical treatment.
- Encourage disciplined investment: When you opt to purchase a ULIP at an early age, by default, you get into a disciplined investment decision. You will learn to invest a small amount regularly towards a large corpus by efficiently planning income and expenses.
- Market-linked investment: Since investments made in ULIP are in the money market, it is like any other exclusive equity investment you make. It is market-linked and competitive in terms of returns earned.
- Long-term investment: In a money market, the longer you stay invested, the better and higher returns you get. Since ULIP is a long-term investment plan, you can expect a higher return considerably. Based on these returns, you can plan on big-budget commitments in your life like children education, marriage, home loan etc.
Investing in ULIP is one of the best options to secure your family’s financial obligations in the event of your unexpected death, critical illness or disability. It will help you accumulate money for a higher return in the long term to manage financial commitments that arise in the future.
However, it is up to you to make the most from the best ULIP plans. You can make use of the ULIP return calculator to get a fair idea. You have to analyze your current income, your long-term financial goals, risk tolerance levels and decide on a suitable plan that will meet your needs best and comfortably. Stay invested and be secure with a ULIP!