There are many benefits of investing in the ULIP (Unit-Linked Insurance Plan). The life insurance component of the plan can function as a life cover. If you die while the policy is in effect, the insurance company will pay a death benefit to the nominee, just like the usual term life insurance plan would do as long as all due premiums are paid.
Depending on the conditions of the policy, the death benefit amount may be the sum assured or the plan’s investment value, whichever is greater. A ULIP may help ensure that your family has financial security even after your demise.
If you are considering purchasing a ULIP, understanding the benefits of the plan may help you make an informed decision. Read on to learn why you should invest in ULIPs and how they might benefit you.
One gets dual benefits of investment and insurance
A ULIP investment provides both the life protection benefits of an insurance policy and the ULIP returns of market-linked investments.
A predetermined sum is deducted from the total premium that is allocated for life insurance coverage. The remaining premium amount is allocated to ULIP investment instruments such as debt and equity funds. This allows you to receive a comprehensive financial solution for your needs.
Tax Advantages of Triple E-E-E
The policyholder can receive triple EEE (Exempt-Exempt-Exempt) tax benefits by investing in a ULIP plan which is not available in term life insurance plan. This means that you can claim a tax rebate at these three stages of a ULIP investment.
Investment stage
Returns Stage
Withdrawal Phase
One will be able to deduct annual premiums from your taxable income just like you would do in your term life insurance plan. One should know that ULIP returns or sum assured are exempted from taxation. Even the interest earned on maturity is also tax-free. After the lock-in term expires, the policyholder may withdraw their fund and any accumulated returns.
ULIP Top-Up Benefits
ULIP investments let the policyholder grow their investment amount above and beyond their fixed premium amount. The top-up facility allows you to put more money into your existing ULIP insurance making it one of the best one time investment plan.
If the current fund is performing well, you can easily invest the excess money in the existing ULIP funds. This allows you to capitalize on the growth of your ULIP investing fund.
Fund Switching Flexibility
The fund-switching option allows the policyholder to modify the ratio of exposure to equity, hybrid, or debt funds based on the following factors:
Risk profile of the investor
Performance of several ULIP plan funds.
This ULIP feature allows you to transfer your entire or partial investment amount from one fund to another without incurring any expenses and that is what makes the best one time investment plans an investor can think of.
If you keep an eye on capital market movements, you can effortlessly use this one-of-a-kind tool without leaving your house. Every year, ULIP Plans provide a few free switches to their investors.
Various Investment Options
ULIPs is such an insurance plan that provides one time investment plan that provides a variety of investment alternatives to meet the diverse needs and risk appetites of clients. There are various ULIP investment alternatives available.
● Equity funds
● Debt funds
● Balanced finances.
● Money Market Funds
● Hybrid funding
Investors can select the ULIP plan that best suits their investing objectives and risk profile.
Investors can also choose between the many investment alternatives available through the ULIP plan to rebalance their investment portfolio based on market conditions or changing investment objectives.
Fund Liquidity During the Lock-In Period
ULIPs normally have a 5-year lock-in period. It is the minimum time period within which the policyholder cannot withdraw or surrender the policy.
After the lock-in period, you can withdraw a portion of your ULIP investment. During the ULIP lock-in period, you can switch between the various investment options provided by the ULIP plan without incurring expenses. A five-year lock-in period is also required to benefit from the tax advantages of a ULIP investment.
Potentially higher returns
ULIP returns outperform other insurance policies such as term life insurance plan and savings schemes. You can change your fund portfolio based on the market performance assessment. ULIPs invest money in a variety of asset classes and are managed by skilled fund managers.
A ULIP plan also has a cheaper overall premium allocation, policy administration, and fund management fees.
Disciplined Savings
One of the reasons why ULIPs are preferred as one time investment plan is because they can encourage disciplined savings by requiring a systematic and planned approach to investments. Aside from single-premium ULIPs, regular premium plans may allow you to make monthly payments.
Making periodic payments can help you save for your financial objectives in a disciplined way.
Transparency
A ULIP provides transparency on your investments and the returns you earn on them. You can examine your portfolio online or contact your investment provider to see how your funds are allocated and tracked. The ease with which an investor can track the investment makes it one of the best one time investment plan.
Also, with fund switching and premium redirection, you can adjust your fund allocation at any moment.
So we are saying,
To summarise, the answer to the question “Why should I invest in ULIP?” is fairly easy. It is a type of financial instrument that offers both life insurance and investing benefits. As a policyholder, you can acquire the life insurance you need in one policy while also potentially earning a return on your investment.
It may also serve as a tax-saving investing option, allowing you to personalize and change your investment plan at any moment.
Article and permission to publish here provided by Nayan Bhardwaj. Originally written for Supply Chain Game Changer and published on September 9, 2024.
Cover Image by Gerd Altmann from Pixabay.