Over the past few years, ULIPs or Unit Linked Insurance Plans have emerged as one of the most preferred life insurance choices for people with specific life goals. Both youngsters who have just started their professional career and adults nearing their retirement age prefer investing in ULIP as it has many attractive features. Before we delve into the ULIP features, let us understand what ULIP is.
What is a Unit Linked Insurance Plan?
Primarily, ULIP is a type of life insurance policy. It is its hybrid nature that distinguishes it from other forms of life insurance. It offers dual benefits of insurance protection and wealth building. Thus, with ULIPs, you can achieve your long-term financial goals while securing your family’s financial future against the uncertainties of life.
There are many features of ULIP that make it an ideal investment instrument for all. Read on to know more.
ULIPs allow you to invest as per your risk profile
As an investor, you would know that no two investment instruments pose the same kind of risk. For example, equity instruments are considered the riskiest investment instrument as they are completely reliant on market forces. On the other hand, debt instruments are comparatively less risky.
Then there are instruments like government bonds and bank fixed deposits (FDs), which pose a minimum risk as they offer stable returns. However, the risk factor of the investment instrument is directly proportional to the returns offered. Equity instruments offer considerably higher returns than FDs in the long run.
Regardless of your risk-taking capacity, a ULIP plan allows you to align your investments accordingly. You can choose the different funds you want to invest in and also define the percentage of the investment amount you want to put in these funds.
ULIPs offer excellent tax benefits
One of the striking features of ULIP is that it is considered one of the most tax-efficient investment instruments. It helps you reduce your annual tax liability in different ways.
- The premium you pay for ULIP is eligible for tax deduction up to Rs. 1.5 Lakh in a financial year under Section 80C.
- The maturity proceeds, including the accrued returns on your investment after your policy expires, are completely tax-free.
- If you make any partial withdrawal from ULIP after the lock-in period, then the amount is tax-exempt.
- In the event of your unfortunate demise during the policy, the insurer will pay the death benefit to the family, which is entirely tax-free.
ULIPs, help you accomplish your long-term life goals
ULIP is an excellent investment instrument that is suitable for people of all groups, as it allows you to meet different life goals. For example, if your goal is to accumulate a corpus for your child’s future education needs or buy a retirement home, then ULIPs let you accomplish it through regular savings.
The five-year lock-in period allows you to be disciplined and committed towards your savings. Besides, ULIPs offer market-linked returns, allowing you to grow your savings faster and keeping you on course to achieving long-term goals.
Flexibility to switch funds
Another important feature of ULIP is that it allows you to switch between the funds you have invested in as per your changing goals, market conditions, and risk-taking capacity. When you purchase ULIP at a young age, you may have minimal or no financial responsibilities towards your family. Therefore, you can take more risk and allocate a large part of your investment funds to equity instruments.
But as you grow old or near retirement age, you may want to get stable returns without taking a high risk. In such a situation, you can switch from equity to debt funds. You can also switch funds anytime you want.
Thus, with so many attractive and unique features, ULIPs are one of the best investment instruments that you must have in your portfolio.