Investing in ULIP: Why Young Professionals Should Consider ULIPs?
Unit Linked Insurance Plans (ULIPs) are popular among all types of investors. In a survey report published in 20211, 92% of the participants reported increased liking for ULIPs after the first wave of the COVID pandemic. The insurance policy, offering a combination of insurance and investment, serves to fulfil the needs of many, and therefore its popular. For young professionals, ULIPs may be a suitable choice for fulfilling their financial goals. Let’s have a look at some of the benefits of ULIPs
Benefits of the ULIP
Here are some of the benefits of ULIP that young professionals can take advantage of, just like other investors: –
1. Market-linked returns
ULIP are linked to the market, wherein you can choose a fund as per your risk appetite . The market-linked funds move in tandem with the market and have the potential to yield returns on your investment. These returns help you create a corpus for your financial goals.
You can use the ULIP calculator to estimate the corpus that you can create with the market-linked returns that the funds in which you invest may generate.
2. Choice of investment funds
There is a range of investment funds available under ULIPs. These funds ensure that the plan suits the varied investment needs of different professionals. Equity-oriented funds do the needful for those who have a high risk appetite. On the other hand, if you are risk-averse and want stable returns, there is a range of debt funds to match your investment needs. Moreover, ULIPs also offer balanced or hybrid fund options that combine both equity and debt securities to give you the benefits of both asset classes.
3. Insurance protection
Being a life insurance policy, ULIP provides insurance coverage against premature demise. Thus, young professionals may also take benefit of insurance coverage to create wealth and financially secure their families against the risk of premature death.
4. Flexibility of managing investment
ULIPs are flexible insurance plans that allow you to manage your investment per your changing needs and market conditions. Some of the flexible benefits available are as follows:
• Switching –
you can change the investment funds during the policy tenure if your risk profile and/or the market dynamics changes.
• Partial withdrawals –
you can make partial withdrawals from the fund value, after the lock-in period of five years, if you are in need of funds.
• Top-up –
you can make additional investments into ULIP through top-up premiums. Please note that these benefits can be opted for, subject to the terms & conditions of the policy.
There are different types of ULIPs available in the market so that you can fulfil your financial goals. Have a look at some of these, among others –
- Endowment ULIPs help you create a corpus for any financial goal that you might have.
- Whole-life ULIPs allow lifelong coverage and long-term wealth creation.
So, depending on the financial goals that you might have, you can choose a suitable plan.
6. Tax benefits:
Lastly, let’s not forget the tax benefits that ULIPs can provide, subject to the provisions of Income Tax Act, 1961 (the Act). Some of these benefits are as follows:
- Premiums paid for life insurance policy including ULIP, up to 10% of the death sum assured, qualify for a deduction under Section 80C up to Rs.1.5 lakhs2 if the policy is bought on or after 1st April 2012.
- For policies bought before 31st March 2012, premiums up to 20%2 of the death sum assured are allowed for deduction.
- In the case of individuals suffering from any disability defined under Section 80U or a disease defined under Section 80DDB, premium up to 15%2 of the death sum assured is allowed as a deduction if the policy is bought on or after 1st April 20132.
- Partial withdrawals are tax-free4.
- Switching is also tax-free5.
- The death benefit is always tax-free3 subject to fulfillment of other tax criterions.
- If you have bought the ULIP before 1st February 2021, the maturity benefit will be tax-free subject to satisfaction of conditions mentioned in Section 10(10D) of the Act3.
- For ULIPs bought on or after 1st February 2021, the maturity benefit is tax-free if the annual premium paid for all ULIPs is up to Rs.2.5 lakhs. If the annual premium is higher, the gain from such policy will be treated as equity/debt oriented capital gain depending on underlying assets of policy3.
ULIPs may fit into the financial portfolio of young professionals and help them create a corpus for their goals.
Charges under ULIP plan
A ULIP plan comes with a host of charges you should know about. Some of these charges are as follows –
Type of charge
Premium allocation charge:
The charge levied to cover costs incurred in issuing the policy. The charge is deducted from the premium before it is invested in different market-linked funds. For e.g. the underwriting expenses and the distributor fees, if any.
Policy administration charge:
The charge levied to cover the administration costs of the insurer for e.g. regular paperwork and record keeping etc.
Fund management charge:
The charge levied to pay for the fund management fees. The fee is payable to the fund managers (experts) who manage the ULIP funds on behalf of the policyholders.
The charge for the insurance coverage provided under the plan.
Other charges include switching, policy discontinuation, rider or partial withdrawal charge, which might be levied if applicable.
Young professionals have time on their side, and by considering investing in ULIPs, they can start saving small amounts for a long-term horizon to build a corpus for their different financial goals that they might have. So, understand the benefits of ULIPs and how they fit in with your needs. Use a ULIP calculator to buy a plan that matches your investment needs and save for your goals.
1. Are there separate ULIP plan for young professionals?
No, the regular ULIPs available in the market are available for young professionals too.
2. Can a parent buy a ULIP plan for their child?
Yes, a parent can buy a ULIP plan for their child. The parent can consider buying a ULIP based child insurance plan to provide the financial protection that the child needs even in parent’s absence.
3. Do all ULIPs allow switching?
Yes, all ULIPs allow switching between market-linked investment funds so that you can manage your investments as per your needs.
Are ULIPs Good As A Long-Term Investment?
When one hears about unit-linked insurance plans, the first question
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A Unit-Linked Insurance Plan or a ULIP offers a combination
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ULIP Investment Plan FAQs Answered
A unit-linked insurance plan provides insurance with investment