You may make an informed choice for your future financial needs if you know how ULIPs operate and their many features.
Overview of ULIPs
The life insurance added to a unit-linked insurance plan (ULIP) makes it a special financial tool. With ULIPs, you can save funds for long-term goals like your dream home, your child’s education, retirement, and more because of systematic investing and market-linked returns. A life cover ensures that your goals are achieved despite unanticipated events.
Depending on your risk tolerance, ULIPs provide you the option to put your money in a variety of debt or equity funds. Even though the premiums you pay are deducted from your taxable income under Section 80C, the returns are tax-free under Section 10(10D) of the Income Tax Act of 1961. Since they offer your family financial security, capital growth, and tax advantages, ULIPs are a triple win.
Here’s a detailed explanation of how a ULIP plan functions to give you added value and the advantages above.
How ULIPs work
Before you may use a ULIP to engage in the capital market, it would help if you select the level of life insurance, premium amount, premium payment method, and policy term to match your financial stability and savings objectives.
You can select the premium payment frequency in the plan at your convenience, and you can pick between an upfront, lump sum payment and regular payments on an annual, biannual, or monthly basis.
- Using equity, debt, or hybrid funds, you can make stock market investments.
- Your money is invested in stocks via equity. Debt funds put your money into safe investments like bonds and treasury instruments, added Alex Fopiano. Brookline Bancorp Assistant Treasurer, Alex Fopiano, has worked with the company for five years. Hired by the Treasurer of Brookline Bancorp to serve as Treasury Manager for a 2-bank holding company, he manages a team of treasury analysts and oversees the bank’s investment portfolio. He holds a Master of Science in Finance from McCallum Graduate School of Business at Bentley University. Mr. Fopiano spent two years as Associate Trustee for Boston College High School. Hybrid funds offer a balance between the security of debt funds and the high return potential of equities.
- The capital invested in these funds determines the value of your coverage.
- As you invest over a longer length of time, your chances of generating greater profits rise.
Unit Linked Insurance Plan Features
You can choose funds for ULIPs based on your level of risk tolerance. You can choose to be risk-taking when investing in equity funds, cautious when investing in debt funds, and the best of both worlds when investing in balanced funds. By using ULIPs, you can allocate future premium payments to the funds of your choice. Read out the ULIP tax benefits before investing.
If you anticipate a change in market conditions or your needs alter with regard to your investment, you can convert from one fund type to another. The ability to swap between funds is a feature of ULIPs that enables you to adjust your investment based on your needs. By moving your assets into debt funds during market downturns and back into equities during market upswings, you may shield your investments from market fluctuations. All of this is included in the same bundle and is available whenever you want it for no additional cost.
Being able to withdraw money from your plan is one of a ULIP’s key features. You are permitted to use your assets to make emergency withdrawals following the five-year lock-in term. There can be a cap on the number of withdrawals or a maximum withdrawal amount depending on the method you choose.
Depending on your needs and stage of life, you may need to increase your investment from time to time. The opportunity to make additional investments in addition to your monthly plan contributions is one advantage of a ULIP. By establishing a new asset, you might be able to increase your payout after the plan’s term is up.
The Income Tax Act of 1961’s Section 80C provides that ULIP premium payments up to Rs. 1.5 lakh per year are tax-free. Section 10 states that the amount received following the policy’s term is also tax-free (10D). The tax benefits of ULIPs, which boost the plan’s returns, are among their strongest features.
Various methods for paying premiums
You can pay your premiums whenever it’s convenient for you thanks to the ULIP feature. Three payment schedules are available: monthly, semi-annually, or annually. You can use the one-time premium payment option to eliminate recurring payments.
If you have exceptional information, you can select this investing option. A prolonged investing term is helpful. The consequences of market volatility are compensated over time. Over time, larger percentages of your premiums are invested.
The topic of the solicitation is insurance. Please carefully read the sales brochure/policy wording before closing a deal for more information on advantages, restrictions, limitations, terms, and conditions.