8 Reasons – Why You Should Invest in ULIP
If you're wondering why you should invest in ULIP now, the answer is simple: ULIP plans combine life insurance with market linked investment. The following benefits make it a great choice:
More Than One Benefit
Along with a life cover, ULIPs offer a corpus with market-linked returns on maturity. You can secure your family's financial future by choosing an appropriate life insurance cover and growing your wealth over the years through market-linked investments.
Tax Benefits
A ULIP may offer the opportunity to avail several tax benefits you may choose from while filing your taxes. While contemplating the question "Why invest in ULIP?", ensure that you consider this opportunity. There may be limited investment options that come with the potential to offer market-linked returns with tax benefits, and a ULIP is one among them.
ULIP tax benefits on premiums
The premiums you pay for your ULIP plan can help you avail deductions under Section 80C of the Income Tax Act, 1961, as per the provisions stated therein. You can opt for these deductions if you choose the old tax regime. The new tax regime may not offer these benefits.
ULIP tax benefits on maturity
ULIP offers maturity benefits according to Section 10 (10D) of the Income Tax Act of 1961, subject to provisions stated therein. To get tax benefits on maturity, the premium should be less than 10% of the sum assured if the plans are bought after April 1, 2012. If the plan was bought before April 1, 2012, the annual aggregate premium should be lower than 20% of the sum assured to get tax benefits. As per the Union Budget of 2021, if the total annual premium paid for a policy bought on or after February 1, 2021, is more than Rs 2.5 lakhs then the maturity proceeds may be taxed as Long Term Capital Gains (LTCG).
The Opportunity To Create Wealth
A ULIP may help you create wealth by providing market-linked returns on your investments that are associated with risks. You may choose from several fund options available under the plan. Your choice of funds can be based on your risk appetite and investment goals. Over time, the returns generated from your ULIP may multiply with the power of compounding. The compounding effect may allow you to earn interest on your previous returns alongside your investment amount.
Different Fund Options
A ULIP may offer you several investment options. If you are a conservative investor, you may choose debt funds, while if you are an aggressive investor, you may select equity funds. You may also go for balanced funds that can be a mix of equity and debt investments. The flexibility to choose from different fund options may make ULIP a suitable investment option for people with varying investment preferences.
Switching between funds
While understanding why to invest in ULIP, you should keep in mind a feature that the product may offer, which is the option of fund switching. If you are unhappy with your current investments, you may get to change your fund allocation. With fund switching, you may switch your existing fund allocation to the new fund of your choice.
Also, a ULIP may offer an option of premium redirection that allows you to redirect your future premiums to a new fund option you like. You may change your fund allocation anytime with premium redirection and fund switching. Since ULIP is a long-term investment, these features may benefit you in managing your investment based on your risk appetite. You can opt for the abovementioned features subject to the terms and conditions of the policy. Hence, please read sales brochure to understand the benefit. This will vary from plan to plan .
Top-Up Benefits
A ULIP may also offer the benefit of top-up contributions, which is the amount paid at irregular intervals over and above the basic premium. Over the years, if you want to increase your ULIP portfolio, you may opt for the top-up option. It might help you to increase your corpus and reach your financial goals. This facility is subject to policy terms & conditions.
Disciplined Savings
Investing in a ULIP may encourage disciplined savings by providing a systematic and planned approach to investing. Apart from the single-premium ULIP, the regular premium options may enable you to make recurring payments. Making recurring payments may allow you to save for your financial goals in a disciplined manner.
Transparency
A ULIP offers transparency in terms of your investments and the returns you make on them. You may check your portfolio online or contact your investment provider to check on your fund allocation and track them. Also, with fund switching and premium redirection, you may get to change your fund allocation anytime.
How ULIPs Provide Wealth Accumulation Benefits?
ULIP plans provide the potential to build wealth over time by combining market linked investment with the security of life insurance. The main ways in which ULIPs do this include -
- Market-linked returns : Your premiums are partly invested in market linked funds as such equity, debt , hybrid funds, giving you the potential to earn market-driven returns. You can choose funds based on your risk appetite.
- Power of compounding : The longer you stay invested, the more your money has the potential to grow. Compounding allows your reinvested returns to earn further returns over time.
- Fund switch options : ULIPs let you switch between funds (subject to policy terms and conditions) as your goals or market conditions change.
- Top-up flexibility : If you have any extra income or additional money , you can use it to make top-up investments in your ULIP to boost your corpus.
- Long-term focus : Since there's a lock-in period of 5 years with ULIPs, it helps to build financial discipline.
Who Should Consider Investing in ULIPs?
ULIP plans can work well for different people. Your financial goals, life stage, and comfort for taking risks are points to be considered prior to the purchase of a ULIP. Below are a few profiles of those who may benefit from ULIPs:
Young professionals starting financial planning
.If you're just beginning your career, ULIP plans offer life cover while also potentially helping you build a corpus through market linked funds . You can choose funds based on your risk appetite and benefit from long-term compounding. It also builds the habit of disciplined investing from the start.
Parents planning for child’s education
ULIP plans for child education provide life insurance coverage and potentially help you build a dedicated corpus through market linked funds . As your child grows and education goals get closer, you can switch between funds to align with your changing risk profile, life goals and market performance.
Salaried individuals with tax-saving goals
Looking to reduce tax liability while investing for potential long-term returns and securing your family’s financial future? ULIPs not only provide a life insurance cover but also offer the potential of market-linked growth, along with tax benefits under Section 80C (old tax regime) and Section 10(10D) under both the old and new tax regimes.
Investors with long-term risk appetite
If you’re comfortable with market-linked risk and want to stay invested for a long time, ULIPs give you flexibility and growth potential and a financial safety net for your family.
How ULIPs Support Your Long-Term Financial Goals
If you're planning for milestones like your child’s higher education, retirement, or buying a home, these plans offer both financial protection through life coverage and the potential of compounding-driven growth from market linked funds. Here's how they help:
Potential to Build Wealth Over Time with Regular Contributions You invest small amounts regularly via monthly, quarterly, half-yearly or yearly payments. You can also pay at once if you wish to invest as a lump sum. Over time, this has the potential to build a sizeable corpus through market returns and the power of compounding.
Flexibility
ULIPs provide the freedom to shift between different market linked funds (subject to policy terms and conditions) like equity, debt, hybrid funds.
Financial protection alongside the potential of growth
ULIPs offer life coverage to financially protect your loved ones in your absence, with the potential of market linked growth.
Common Myths About ULIPs Busted!
People often hesitate to consider ULIP plans because of ambiguities or outdated beliefs. But many of these concerns don’t hold up . Let’s break them down:
ULIPs are too risky
It’s a common worry, especially among first-time investors. But ULIPs offer multiple market linked fund choices. You can invest in market linked funds depending on your risk appetite , life goals , market performance and switch funds (subject to policy terms and conditions). It’s not about avoiding risk completely—it’s about managing it smartly over time.
ULIPs are expensive
ULIPs have evolved significantly over time, with the current ULIP plans offering both transparency and cost-effective charge structures. Some ULIPs offer return of mortality charges, if the insured survives the policy term, while some also offer low or zero premium allocation charges1, reducing the overall costs. When you stay invested for long-term, the returns you earn on your investment also start earning returns, leading to growth over time.
Conclusion
In conclusion, the answer to "why I should invest in ULIP?" is quite simple. It is an investment instrument that provides dual benefits of life insurance and investment. As a policyholder, in a single policy, you may get the life cover you need and the potential for returns on your investment. It may also act as a tax-saving investment option that allows you to customise and modify your investment strategy anytime.
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