Is ULIP a Good Investment?
Table of Contents
What Is a ULIP?
Unit Linked Insurance Plans widely popular as ULIPs are a special combination of life insurance coverage and market Linked investment. The premium paid towards the ULIPs is split into two parts by the insurance companies. The smaller portion is utilized to provide life insurance coverage for the policyholder and the other larger portion is invested in market funds. These funds may be equity funds or debt funds or a balanced mix of both. The choice of investment in funds depends on the policyholder. The policyholder is also flexible to switch between funds during the tenure but after the lock-in period of 5 years. Switching of funds is generally made to get benefitted from the market fluctuations. The longer the funds stay invested, the higher the returns for the investor.
Reasons To Invest In ULIP
Here are a few reasons that make a ULIP investment to be a good idea:
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Dual Benefits In A Single Plan
The most important and special benefit of Unit Linked Plans is that they provide the benefit of investment along with life coverage in a single plan. Therefore you need not go for separate insurance and investment plans to secure your future. Thus, you get to save on your premium amounts.
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Tax Benefits
Under Section 80C of the Income Tax Act,1961, the premium paid towards the ULIPs are exempted from the payment of tax up to 1,50,000. Also, the death benefits, as well as the maturity benefits, are free of tax as per Section 10(10D) of the same Act.
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Flexible Investment Options
ULIPs provide the policyholders with the flexibility of switching funds from equity, debt or balanced funds according to their risk appetite and needs. If the individual is interested in taking high-risk investments then he/she can increase the investment portion in investment funds. If you wish to decrease your risk at any point, you can switch to debt or balanced funds. However, the switching of funds is allowed only after the lock-in period of 5 years.
ULIPs provide Top-Up Options which allow you to invest extra money in your already existing savings. The premium redirection option allows you to redirect your future premiums into different funds.
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Sum Assured
The policyholder is guaranteed a sum assured by the insurer at the time of taking the policy. In case of any untimely demise of the policyholder during the tenure, the sum assured is paid to his/ her nominees. This fixed amount is also free of tax payment.
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Potential for Higher Returns
The potential to gain maximum financial rewards is great in the case of ULIP returns while compared to the other investment options. The insurance companies also provide your bonuses in the form of wealth boosters or loyalty additions. It is advisable to make the investment for a longer period as the longer the investment, the higher the returns.
Conclusion
ULIPs prove to be good investments if you want to have a long term market-linked investment plan along with life insurance coverage in a single package. ULIPs are beneficial to those persons with a good risk appetite. It offers tax benefits, maturity benefits as well as death benefits to the policyholders. The ULIPs are advisable only if you have a particularly long term goal to fulfil. The funds cannot be withdrawn or switched before the 5 year lock-in period. However the longer the funds stay invested, the higher would be the returns.
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Difference between ULIPs and Life Insurance
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
