ULIP plans or unit-linked insurance plans are fast becoming preferred investment options for people today, and with good reason! These plans offer dynamic benefits and help plan for future goals alongside. Here’s learning more about ULIPs and the key features that differentiate them from other investments.
ULIP plans are a combination of insurance and investment. They are ideal for meeting diverse life goals as they ensure life coverage for the policyholder while enabling them to invest in various market-linked instruments. In addition, they come with accompanying tax benefits and provide higher flexibility in managing the investment. The multi-faceted nature of ULIPs is their most significant asset, making them preferable over other conventional investment options. The popularity of these plans can be gauged by findings from this survey. It revealed that two out of three people had plans of investing in ULIP plans in the coming year. 92% also talked about how they became more inclined towards these financial products after the pandemic, and the recent economic uncertainties of the world will only make these products more attractive to the customers. Let’s learn more about some of their key features.
ULIP plans come with the following features which differentiate them from almost every investment option out there:
- The Combination Of Insurance And Investment- Very few investment options can ensure double benefits for investors. Buying a ULIP plan ensures that you get an opportunity to invest and earn handsome returns at maturity. You can choose to invest in diverse kinds of funds: a mix of equity, debt, liquid, or hybrid funds. This helps you fulfill your long-term financial objectives and get life coverage simultaneously. You will be covered throughout the tenure of your ULIP plan. This ensures that your family is financially secure in the event of your unfortunate demise within the policy period. The insurance company will payout the sum assured (also called death benefit) to your nominees in such a scenario, or the higher of the sum assured or fund value, depending on the type of ULIP.
- Ulips Come With Several Tax Benefits- ULIP plans come with multiple tax benefits for investors. Your premium payments can get you deductions up to Rs. 1.5 lacs, as specified under Section 80C of the Income Tax Act. At the same time, your maturity payouts may be tax-exempted under Section 10 (10D), subject to specific terms and conditions. Payouts resulting from the policyholder’s demise are always tax-exempted under this section.
- Switching Between Funds- You can switch between funds throughout the tenure of your ULIP plan. Some insurers offer multiple free fund switches throughout the policy tenure, while some offer a limited number of free switches yearly, with nominal charges afterward. Fund-switching is a significant differentiator for ULIP plans, enabling you to keep your investment in sync with your evolving life goals and needs. If your risk appetite increases or you wish to earn higher returns and are comfortable taking risks, you can scale up your allocation to equity. You can also scale up your allocation to debt funds if you are more risk-averse and wish to adopt this approach after a certain period. You can also switch funds based on market movements, switching more to equity in bull markets and debt in bear markets. This either safeguards your investment or helps you earn higher returns.
- Flexible Investment Choices- ULIP plans come with lock-in periods of five years, post which you can continue your investment seamlessly. You can withdraw the fund value or reinvest the same for a longer tenure to earn higher returns. Along with fund-switching, you can choose the funds you wish to invest in at the beginning of the policy. Some ULIPs also allow investors to choose top-ups where they can invest more above the current policy premium.
- Meeting Future Life Goals Without Compromising On Coverage- While you continue getting life coverage throughout the tenure of your ULIP plan, you can tailor your investment to meet future life goals, including retirement, buying a house, the higher education of your children, weddings in the family, or even buying a car or taking a foreign vacation.
These are some of the most significant advantages of investing in ULIP plans that you should keep in mind. They are key differentiators for these investment options and help them stand out from other existing choices in the market. Not only do you get tax benefits with ULIPs, but you also get to choose your funds, switch them throughout the tenure, and earn handsome inflation-beating returns over the long haul in most cases. Of course, the most significant benefit is that you can tailor your investment to exactly match market movements and your life goals alike.