Who Should Buy a ULIP Plan?
Today, investment decisions may be challenging, and opting for insurance products is a confusing process. However, what if you can choose a plan that gives you life insurance cover and an investment option in one? This would be a suitable plan to allocate your funds to, right? A ULIP, or Unit Linked Insurance Plan, is just such a plan. It combines investment with insurance. A portion of the premium you pay goes into your insurance cover, and the rest is used to make market-linked investments. The life cover part may not need clarification, but you may be wondering what kinds of investments are made with the other funds you allocate to the plan.
The remaining funds that you pay in a ULIP, besides the life cover charges, are invested in market-linked securities, such as debt and equities or in mix of both. The consequence of this is that your wealth has a chance to grow and build into a corpus by the time your ULIP reaches maturity.
Who Makes A Good ULIP Investor?
A ULIP is a unique way to get insurance cover while your investment works towards building your wealth corpus. What’s more, the investment portion of a ULIP may be custom-made to suit your financial needs, and you have some say in what kinds of investments may be made, and the fractions of these. Depending on your tolerance for risk and other important factors, you may wish your investments to be allocated to suit you. Does the plan sound good to you, or are you still wondering whether you would make a fine candidate to opt for such a plan? You can find out by reading below:
- A ULIP Offers Financial Freedom - A Unit Linked Insurance Plan is an effective financial product for anyone who wants financial freedom. With a ULIP, there is a possibility to shift your market-linked wealth across a variety of funds. Depending on your appetite for risk, age and the returns you wish to gain, a ULIP is flexible investment for you as an individual. For those who want to monitor their money in real time, Unit Linked Insurance Plans may be preferred. There is also transparency in transactions. Finally, ULIPs help you to attain a degree of financial freedom and the freedom to opt for funds that especially match with your requirements.
- Long-Term Horizon - Any investment in equities requires patience as this is held for the long term. With volatility in the markets, equities may show substantial returns if you stick with them, rather than impulsively sell for short-term gains.
- Age Does Not Matter - One of the features of ULIPs is the fact that they offer a broad range of policies to choose from. You can get a policy to suit your age and preferences. Depending on the stage of life you are in, there will always be a ULIP to match.
- Risk Appetite - The investment part of a ULIP may seem like a risky move for some investors, as that part invests your wealth in market-linked securities. This has to be considered when you invest in a ULIP.
- Market-Based Returns - Market-based risk-adjusted returns are the portion of the plan that reflects equity in a ULIP insurance policy. As a fraction of your premium includes investments in the stock market and debt securities such as government securities, bonds, CDs, CPs, money market instruments, etc., all these investments are market linked, which pertains to market volatility that eventually reflects in the fund’s NAV. Due to the market volatility (a market moment), your returns may be affected.
- Lock-in Term - Previously, ULIPs had a lock-in tenure of three years. The lock-in tenure now stands at 5 years. With a ULIP, to see any gains that will be beneficial to you, you need to play a patience game. If you are willing to wait to see rewards in 10-15 years, you may consider going in for a ULIP.
- Alert Investors - With any investment product you sign up for, or for that matter, any insurance product, you must be an alert and careful investor. Nonetheless, even before you zero in on a plan, you must select a reputable insurer to move ahead with. Then, go in for a plan which suits all your requirements. Please note that there are some insurers who may charge you fees for premium allocation costs, or other processing and administration expenses. Many policyholders of Unit Linked Insurance products end up paying more charges for plans as they have not done their homework regarding ULIPs. Every policyholder should read policy document as well as the terms and conditions of the plan with proper attention.
- Save on Tax - Investing your wealth in a ULIP gives you tax benefits under Income Tax Act, 1961, depending on your amount of investment and as per provisions stated in the act. One can claim the deduction up to Rs. 1.50 lakhs under Section 80C of Income Tax Act for the premium paid under ULIP policies. More ever any benefit received under ULIP policy is tax free in the hands of recipient subject to satisfaction of conditions mentioned in Section 10(10D) of Income Tax Act. Note that if ULIP policy is issued on or after 1 February 2021 with premium more than Rs. 2.50 lakhs, gain from such policy will be taxable as Capital gain in the hands of recipient subject to equity/debt holdings under policy. One can also take aid of ULIP Calculator for further assistance.
A ULIP plan is suitable for everyone who wishes to save and grow their market-linked wealth with calculated risks. When you work on a financial plan for your life, a ULIP may help you diversify your portfolio and keep you financially secured at the same time.
ULIPs can help you save for your retirement too. If you start your plan while you are an earning member of your family, you can afford to take more risk in terms of the investment in equity funds under your plan. Furthermore, if you are a ULIP policyholder and wish to take the ULIP forward into your retirement period, you may choose an option of systematic withdrawal of funds subject to terms and conditions of the plan, so you have a regular income post-retirement.
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