A Unit Linked Insurance Policy (ULIP) is a great investment if you are looking for the twin benefits of wealth accumulation and financial protection. These plans provide investors flexibility and the scope of generating inflation-adjusted returns. There are many other benefits of ULIPs that you need to know about.
What is Unit Linked Insurance Plan (ULIP)?
These plans secures a small portion of your money in markets; both debt and equity, based on your risk appetite and long-term goals. Policyholders can closely track their investment performance and can even switch capital between funds according to changing requirements and risk profiles.
Thus, by investing in such a policy you can get adequate insurance coverage and the opportunity to grow your earnings too.
Now that you are clear about what a ULIP Policy is, let’s look at its benefits:
- Key Benefit of Flexibility
One of the most flexible investment options, ULIP plans offer:
- Options to invest in high, medium, and low-risk funds
- Option to increase portfolio through top-ups
- Flexibility in premium payment frequency
- Option to avail partial withdrawals from the 6th policy year
Make sure you use a ULIP plan calculator to figure out the exact premium you would have to pay, based on your tenure, sum assured, and fund allocations.
- Tax Benefits
The 2021 Budget proposal has made a significant change in the taxation structure for ULIP plans.
- Returns on ULIP investment, where the annual premium is up to ₹2.5 lakh will be exempted from tax.
- Irrespective of the annual premium amount, the death benefit pay-out will remain tax-free under section 10(10D).
- The maturity amount will remain tax-free if the annual premium amount during the investment period remains up to 10% of the sum assured.
- Great Option for Long-Term Investment
ULIPs provide market-linked returns. So, if you create wealth for the long-term your portfolio can tide over short-term volatility to provide potential returns in the future. Moreover, your funds are automatically rebalanced to counter fluctuations in the market.
Along with an adequate death benefit, this creates a proper financial base for you and your family. You can stay assured that their needs will be met in your absence.
- Hassle-Free Online Buying
You can look for, compare and buy a policy online without any hassles. Simply fill in application forms and upload requisite documents.
- Loyalty Additions
Many of these policies will provide loyalty additions from the 6th policy year. Your portfolio switches can also be free. Such additional benefits make it easier to reach your financial goals sooner.
To choose the best ULIP plan in India, make sure to research your options and read the terms and their meaning carefully. For instance, many policyholders often get confused between terms like the sum-assured and fund-value. While the former means the minimum guaranteed death benefit, the fund value is the investment component paid out if the policyholder survives the policy term.
Consider a policy that suits your investment strategy, age, income, and risk profile. Moreover, consider an insurer with solid market reputation.