How ULIP Prepares Single Parents Against Financial Uncertainties?
Being a single parent can be challenging. You have to give your child the love of a mother and a father. You have to guide your child, make it a responsible individual, and also give the important lessons of life so that your child grows up to be self-sufficient and knowledgeable.
Besides the moral and emotional responsibility, you have a financial responsibility towards your child too. Being a single parent, you are responsible for providing your child with the suitable financial resources while the child is growing up.
Moreover, you may also have to plan for a secured financial future for your child, which may not be disturbed if you are not around. Securing your child’s financial future in your absence is all the more important for single parents. While different investment plans may help you build up a corpus for your child, a unit-linked life insurance policy may give you the extra edge.
What is a ULIP?
A ULIP is a life insurance policy that aims to create a market linked investment corpus for your financial goals, in the present case, a corpus for your child. These plans invest your premium in different market-linked funds so that you can earn returns subject to market performance. You get the flexibility of managing your market linked investment as you see fit and even get liquidity through partial withdrawals subject to policy terms & conditions.
Why are ULIPs may be considered beneficial for single parents?
For single parents, ULIPs may be the preferred addition to their financial portfolio, especially while planning their child’s financial future. Here are some reasons why –
1. Insurance + investment = ULIP
The ULIP is a unique insurance cum investment plan that combines the benefits of market linked investment returns with insurance protection security. The ULIP plan allows you to invest in the market-linked funds and assures financial assistance to your loved ones when you are not around.
2. Secured financial corpus through ULIP based Child Plans
- If your child's financial security is your sole concern, a ULIP based child plan may be your bet. The plan is designed to create a secure corpus for a child’s financial future. Commonly, depending from insurer to insurer, it comes with an option of Waiver of Premium benefit2 which waives off future premiums in case of death of a parent. Thus, the policy continues till the chosen tenure and the fund value keeps growing till maturity, as per market conditions. On maturity, the available fund value is paid.
- The plan, thus, ensures an undisturbed corpus creation even if the parent dies prematurely. As a single parent, the child ULIP plan may allow you to secure your child’s financial future.
3. Wealth creation through market-linked returns
- ULIPs have different types of investment funds. Each of these funds invests in securities that include equity, debt, money market instruments, etc. Moreover, the funds have a diversified portfolio and are professionally managed. You can use a ULIP calculator to estimate the returns from the same.
- Thus, when you invest in ULIPs, you get to invest in a diversified portfolio of market-linked securities. These securities have the potential to deliver returns as the market grows but with risk component associated with it. You can use the ULIP calculator to estimate the expected corpus at conservative interest rates and plan for your child’s financial needs.
4. Flexibility of investment
- With ULIPs, you get a host of flexible benefits to manage your money and investment. If you need funds for the small financial needs of your child, you may make partial withdrawals after the first five years of the plan are complete subject to plan’s terms & conditions.
- Secondly, based on the changing market dynamics, you can switch between the available funds to optimize your market linked returns while minimising the associated risks and losses. This is subject to policy terms & conditions.
- There’s also the option of additional investment through top-up premiums by paying additional premium and the settlement option that allows you to redeem your maturity benefit in instalments for extended returns, subject to policy terms & conditions.
- So, with ULIPs, you can manage your investments and even draw on them when needed, subject to terms & conditions of the policy
5. Tax benefits
- Lastly, the tax benefits of a ULIP serve as the ultimate cherry on the cake. The premium paid for the policy is allowed as a deduction from the taxable income. The limit is 10% of the sum assured, subject to a maximum deduction of Rs.1.5 lakhs under Section 80C. This helps you reduce your taxable income and, consequently, your tax liability1.
- Secondly, switching your investment from one fund to another is also completely tax-free. You don’t pay any tax on the amount switched. The tax implications would be triggered only at the time of receipt upon withdrawal/maturity or surrender in accordance with section 45(1B) of the Income Tax Act, 1961.
- Thirdly , the death benefit received from a ULIP is tax-free.
- Fourth, the maturity benefit/partial withdrawal benefit you get is tax-free, provided that the aggregate premium paid for all the ULIPs bought on or after 1st February 2021 does not exceed Rs.2.5 lakhs and policy is satisfying conditions mentioned under Section 10(10D) of Income Tax Act, 1961.
- These tax benefits can create a tax-efficient corpus, help you save taxes, and increase your disposable income when investing.
The love for a parent cannot be undermined. You love your child and want to give them the better life. However, that may cost money, and while you can toil hard to earn, you may need to secure your earnings too. The ULIP plan may help you do that. It not only allows you to create a tax-efficient, and market-linked corpus but also helps in ensuring financial assistance after your demise. A ULIP based child plan can be the preferred plan for securing your child’s financial future in your absence.
So, consider investing in the suitable ULIP and gift your child a secured financial future.
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