Benefits of ULIPs
Let us take a look at the various benefits you can expect by investing in ULIPs:
Get the dual benefit
A ULIP is a one-stop solution for people who plan to invest their money and are also looking for life cover. Along with coverage, you can invest your money in market-linked investment funds.
Control your investment
ULIPs offer you the option of choosing funds as per your preferences and risk appetite. You may decide your future financial goals and invest in a fund that suits your requirements. You also have the option of switching your funds whenever you want. This way, you can manage your investment to your benefit.
Distribute the risk
When it comes to the investment plan under ULIP, you can create a well-balanced portfolio. If you are a moderate risk-taker and wish to spread the risk, you may also choose to invest in a combination of equity and debt and thereby distribute your risk of investing across funds and is one of the crucial benefits of ULIPs.
Liquidating is easy
ULIPs offer a partial withdrawal feature. This means you can withdraw a specific part/percentage of your policy to meet your essential financial needs. Once the lock-in period is over, you will find ULIP as your backup plan.
Disciplined way of long-term saving
People have different financial goals. For some, it may be their child's wedding or higher education and for others, it may be a trip to their favorite destinations, a business expansion, and so on. A ULIP is a simple way to achieve such financial goals. It helps inculcate a habit of disciplined saving by investing in regular premiums, which can be monthly, quarterly, half-yearly or annual.
Get tax benefits
ULIP comes with tax benefits as offered under the Income Tax Act of 1961. Here are the details of the taxation benefits of ULIPs:
- Under Section 80C, the premium paid towards the ULIP is eligible for tax benefits under old regime of Tax. You can get a tax deduction of up to ₹1.5 lakhs on premiums up to 10% of the sum assured.
- The maturity benefit under ULIP is not taxable1 if annual aggregate premium is less than ₹2.5 lakhs under Section 10(10D), for policies bought on/ after 1 February 2021 if all the conditions under section 10(10D) are satisfied, In case above conditions are not satisfied, capital gains tax will be applicable depending upon composition of Debt Equity.
- For policies taken before 1st February 2021, 10(10D) benefit is available if the coverage is at least 10 times the premium if the policy is purchased after 1st April, 2012 and 5 times if the policy had been purchased even before 1st April, 20122.
- In case the policyholder passes away during the policy tenure, the nominee/family receives the death benefit. This amount is not taxable in the hands of the nominee2.
- In case you switch between funds for investment under ULIP, there are no tax implications3.
Reasons for considering investing in ULIP
A Unit Linked Insurance Plan (ULIP) is a life insurance policy that provides coverage for a fixed duration. If the life assured dies during the tenure, the nominee will receive a death benefit. It ensures the family does not have to struggle through financial issues after the demise of the breadwinner.
In addition to the life coverage offered, ULIPs allow you to invest a portion of the premiums in market-linked funds. Consequently, you receive dual benefits, which are basically insurance cover and the opportunity to potentially invest and grow your money in available investment options such as equity, debt & balanced funds market. However, the value of your investments will vary based on market volatality.
ULIPs can also have tax advantages. For certain sections of the Income Tax Act, the premiums paid may qualify for tax deductions. The death benefit or maturity proceeds received may be received in full and be tax-free, provided certain conditions are met. This provides a distinctive offering set to those interested in life to cover in conjunction with the flexibility of investment and potential tax advantages.
ULIPs Offer Flexibility
ULIP offers flexibility in terms of asset allocation, risk tolerance, and liquidity after the lock in period. You can change your choice anytime to match your goals. This helps you manage your funds while keeping your life insurance plan active.
Flexibility to choose the type of fund :
ULIP benefits include selecting the type of fund such as equity, debt, or balanced funds. This helps you decide how your money is used based on your goals and your risk-taking ability. You can switch the type of funds based on market volatility and your risk appetite.
Flexibility to opt for a rider:
Another advantage of a ULIP plan is that the policyholder can add riders. Riders are add-on benefits available at additional nominal premiums. Such as critical illness benefit rider or accidental death benefit rider etc. Selecting riders allows you get add on coverage over and above your life insurance plan depending on your needs and budget.
ULIPs Offer Transparency
ULIP benefits include easy-to-understand details about charges, how the funds are doing, and your policy status. You can see where your premiums go and track your investments.. This clear information helps you know how your policy is working and what costs are involved, making it simpler to keep track of your finances while having life insurance protection.
Goal-Based Savings with ULIPs
ULIPs help in sgoal-based savings by allowing you to align your investment with specific financial aims, such as education, retirement, buying a home etc. ULIP plan benefits include flexible premium payments and fund options to suit different timeframes and risk levels. This approach helps you plan systematically for future needs while enjoying life insurance protection. Regular monitoring and fund switching options help you stay on track toward your savings and goals.
ULIPs Offer Tax Benefits
Subject to restrictions imposed by relevant tax laws, ULIP benefits include tax advantages on premiums paid. If specific requirements are fulfilled, ULIP plan benefits may consist of tax exemptions on death benefits and maturity proceeds. Policyholders can maintain life insurance protection and improve their financial management with the help of these tax advantages.
ULIPs Offer Liquidity Post the Lock In Period
Benefits of ULIPs include the ability to take partial or complete withdrawals after a 5-year lock in period , subject to policy terms and conditions. Because of this liquidity feature, ULIPs can be adjusted to changing financial circumstances by striking a balance between the need for financial flexibility and long-term savings and life insurance protection.
Benefits of investing early in ULIP
Simply put, there’s no perfect age to make an investment. However, to get good returns, you may try to start a ULIP as early as possible. ULIPs help you in building a corpus, so the sooner you commit to the plan, the more likely you are to build a bigger one. With time, you will typically see how the power of compounding facilitates the accumulation of attractive returns over a period of time. As the premium frequency can be monthly, it allows you to save in smaller amounts and still build up a considerable corpus.
As life coverage is a major advantage of ULIPs, you also enjoy financial security against unfortunate mishaps. Apart from this, the inherent tax benefits also make investing early in ULIPs a wiser choice.
How ULIPs may benefit individuals starting a family?
A ULIP generally works better when it is treated as a long-term investment. It can offer you a long list of advantages which make it quite suitable if you are planning to start a family soon. Let’s take a look at how a ULIP plan benefits individuals starting a family:
Build a corpus for new pursuits
Planning to get married soon, or a new baby is on the way? ULIPs can allow you to save towards your new pursuits.
Secure your child’s future
Having a baby can increase your responsibilities manifold. Securing their future seems manageable when you invest in the right ULIP. One of the major advantages of ULIP is the premium waiver benefit that waives off future premiums in case of the death of the assured.
A back-up for emergencies
An unannounced family emergency can be troublesome. The partial withdrawal option after the 5-year lock-in can help you with the required funds.
Conclusion
From collecting money to buying a new house or planning a destination wedding, a ULIP is a suitable investment product that can help you with goal-based savings. Along with building a suitable corpus for your future needs, ULIP ensures that your family receives financial support in case of your unfortunate death.
One can choose the investments depending on their risk appetite, which makes ULIPs a well-suited option for almost all kinds of investors. As the policyholder has control over the investments, it offers the much-needed flexibility that investors these days look for.
FAQs
What are the features of ULIP?
ULIPs come with several distinct features:
- Along with life coverage, you invest in market-linked funds
- With fund switching, you can move your money
- Once the 5-year lock-in is over, you can withdraw partially, subject to policy terms & conditions
- Keep up with your changing goals by topping up your ULIPs.
What is the average lock-in period with ULIP?
Typically, ULIPs come with a lock-in period of 5 years. In case you wish to surrender your policy, you can do so at any time.
How does a ULIP provide a combination of insurance and investment?
ULIP is a type of life insurance plan that comes with the advantage of market-linked returns. In the dual-purpose plan, one part of the premium is used towards life cover, while the other is invested.
How does a ULIP offer flexibility in terms of investment options?
While the terms of each plan may vary, flexibility is one of the prime ULIP benefits, which you can enjoy in the form of fund switching, top-ups, partial withdrawals, premium redirections, etc.
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