Why Should You Invest in ULIP?
Unit Linked Insurance Plan (ULIP) is financial tool that combines the benefits of life insurance and investment in one product. ULIPs provide you the option to invest in equity, debt, or a combination of both, as per your risk appetite. Like other life insurance plans, you pay premiums for your ULIP. The difference is that, along with life insurance coverage, you also get market-linked returns on investment. If you are wondering why I should invest in ULIP, know that one primary reason can be the opportunity to get the advantage of both worlds. With a ULIP, you get to achieve two primary financial goals: availing a life cover and earning market-linked returns on investment.
The life insurance aspect of the plan can fulfil the role of a life cover. If you were to lose your life during the policy tenure, the insurance company would provide a death benefit to the nominee of your ULIP, provided all due premiums are paid. The death benefit amount might either be the sum assured of the plan or the investment value of the plan, whichever is higher depending on the terms of the policy. A ULIP might help ensure that your family has the financial security to rely on in your absence.
If you are contemplating your ULIP purchase, understanding the benefits you may get from the plan may allow you to make an informed decision. Read further to find out why to invest in ULIP and how it benefits you:
Why to invest in ULIP?
1. 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.
2. 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.
a. 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.
b. 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).
3. 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.
4. 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.
5. 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 policy to policy.
6. 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.
7. 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.
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.
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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