With the soaring inflation rate, individuals have searched for different investment options. They have realised that having a savings instrument like a Fixed Deposit (FD) cannot beat inflation with its low returns. Also, they might find it too risky to invest in equity markets directly. This has compelled them to search for better investment options. One such investment option that has gained popularity in recent years is a Unit Linked Insurance Plan (ULIP). Read on to learn about what is ulip plan and its benefits.
What is a ULIP plan?
ULIP is a life insurance product with an investment quotient. The premiums that you pay for it are partly used for providing life cover, while the remaining amount is invested in the funds of your choice. Depending upon your financial planning and risk-taking ability, you can choose the funds you want to put your money in. You can choose equity if you can take high risks, as they offer high returns for the risk involved. If you want a low-risk choice, invest in debt funds, whose returns are lower than equity. You can also get a balanced plan where your money is divided between debt and equity.
Why invest in a ULIP?
The way a ULIP has been designed, it offers several benefits on several levels. Here are some of the significant ULIP benefits:
- Dual benefits
ULIP is a rare product that offers the benefits of investment and insurance under one plan. Instead of buying insurance and investment plans separately, you get both under a single ULIP. Managing two instruments separately can be time-consuming. Instead, this single plan takes care of your two financial components with ease. - Protects with a life cover
The life cover that you get in life insurance ensures that your loved ones are financially protected in your absence. If you suddenly lose your life, your ULIP will provide an assured amount to your nominee. This amount can be the sum assured or the fund value of your investment, whichever is higher. Before buying a plan, ensure that your sum assured suffices to meet the needs of your loved ones. - Tax exemptions
Your ULIP premiums are exempt from taxes under section 80C of the Income Tax Act. The annual deduction is up to Rs 1,50,000. The death benefit received by your nominee is exempt from all taxes under section 10 (10D) of the Income Tax Act. Also, the maturity amount that the policyholder receives is subject to tax exemptions if certain conditions are met. - Provides high returns
Compared to traditional investment options, ULIP has the potential to offer better returns. It allows you to choose amongst different types of ULIP funds based on your risk appetite. If you are looking for a high-return investment, there are equity funds available. They have high risks involved. For low risk, there are debt funds. There are also balanced funds comprising both debt and equity funds to mitigate the risk. - Allows you to switch funds
The investment component of a ULIP offers an excellent opportunity to switch between different types of ULIP. Based on your risk appetite, you can switch between funds anytime you want. You can transfer your money from debt to equity and vice versa anytime. Switching between funds allows you to make most of the market fluctuations. - Free partial withdrawals
When you invest in a ULIP, your investment is blocked only till the lock-in period. The lock-in period is 5 years. The initial lock-in period here helps inculcate the habit of disciplined saving. After this period, a policyholder can avail of partial withdrawals for free anytime they want. - Long-term wealth generation
In the long haul, ULIP benefits the policyholders by compounding their investment. Along with your investments, you also earn interest on the returns of previous years. The high returns can create a sufficient pool over the years with the combination of high returns and compounding. When your ULIP matures, this amount comes in handy to fulfil your long-term financial goals.
Above are some of the exclusive features that a ULIP offers. These features offer several benefits to policyholders, which has led to a growth in its popularity.
