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7 Advantages ULIPs Have Over Savings Plans

Investing in the right financial instrument is extremely essential in order to satisfy your financial goals and objectives on time. With so many investment options to choose from, it is quite natural to find yourself in a tough spot. If that is your case, then maybe you should consider investing in a ULIP. A ULIP investment option comes with several benefits and advantages and can help you achieve long-term market linked wealth creation.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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What is a ULIP?

 

A Unit Linked Insurance Plan (ULIP) is an investment vehicle that combines the aspects of both insurance and investment. A ULIP investment plan offers you protection through a life insurance cover and gives you the ability to create long-term market linked wealth. One of the primary advantages of a ULIP plan is that it offers complete freedom of choice to the investors. In fact, you can choose to invest in either equity funds, debt funds, or a combination of both.

 

What is a savings plan?

 

Now that you know the answer to the question "What is ULIP?" let us look at what a savings plan is.

A savings plan is essentially a traditional life insurance plan with endowment benefits. Such a plan gives you the dual benefit of an insurance protection cover and savings. There are two primary types of savings plan - participating and non-participating. A participating saving plan offers several benefits like bonuses, whereas a non-participating savings plan only offers guaranteed returns without any additional benefit like bonuses.

 

Advantages of investing in ULIPs

 

Now that you are aware of what a ULIP and a savings plan are, let us look at the advantages of ULIP insurance

 

1. High return generating potential

 

With ULIPs, you get to invest in either equity funds, debt funds, or a combination of both. This allows the plan to generate market-linked returns over the long-term horizon. With ULIPs, you can also make use of the power of compounding, which can help enhance your returns even further.

2. Can be customized according to your risk tolerance

ULIPs offer you the ability to customize the investment in accordance with your risk taking potential. For instance, if you are a risk aggressive investor, you could choose to invest in equity funds. Alternatively, if you are averse to risk, you could choose to invest in debt funds. Alternatively, if you are an investor who is okay with moderate levels of risk, you could choose to invest in a combination of both equity and debt funds.

3. Fund switching ability

The ability to switch funds is a major advantage that a ULIP insurance plan. Your risk taking potential is something that tends to change as the years go by. You might be okay with taking risk when you are young, whereas you might want to change over to more stable options with lower risk as you age. With ULIPs, you have the power to do so. The fund switching ability of a ULIP allows you to change your investment funds from equity to debt and vice versa.

4. Top-up facility

A ULIP allows you to invest an additional amount over and above your existing premium payments. This ability to top-up your initial investment with a subsequent investment is an advantage of ULIP. The top-up facility of ULIPs allows you to put surplus cash to good use instead of just letting it stay idle.

5. Rupee cost averaging

In addition to allowing you to use the power of compounding, ULIPs also provide you the benefit of rupee cost averaging. When you invest a fixed sum of money regularly in a ULIP for a long period, your cost of investment tends to be averaged out. This is what is known as rupee cost averaging. For instance, when the NAV rises, you purchase fewer units and when the NAV falls, you accumulate more units. When this is done for a long enough period, the cost of investment averages out.

6. Ability to beat inflation

With inflation rates on a constant rise, the value of money tends to go down. However, by investing in a ULIP, you get to earn market-linked returns that may be able to counter the inflation rates, thereby enabling you to successfully combat it.

7. Tax benefits

Premiums up to Rs. 1.5 lakh in a financial year as well as the maturity benefits received under both ULIPs and savings plans are exempt under section 80C and section 10(10D) of the Income Tax Act, 1961 subject to provisions stated therein. That said, in addition to the two tax benefits mentioned above, ULIPs also provide you with a third one,–i.e. exemption from Long Term Capital Gains (LTCG) tax. In fact, ULIPs is one such investment options that is completely exempt from LTCG taxation.

 

Conclusion

 

With so many benefits and advantages on offer, ULIPs are one of the preferred investment options. If you are an investor who is looking for a life protection cover and market-linked returns in the long-term, ULIP investments are the way to go.

Disclaimers:
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#Survey conducted by brand equity – Nielsen in March 2020

~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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