Over the past decade, the insurance industry has surely evolved to cater to the rising needs of its audience. With several products available in the market, have you come across Unit Linked Insurance Plans (ULIPs)? If yes, have you ever thought of investing in it? If not, then do not worry. We are here to help. Let us begin by understanding the ULIP meaning.
ULIP is a Unit Linked Insurance Plan – an insurance product offers the benefits of investments as well. The policy offers dual benefits – life insurance coverage and wealth creation via market-linked funds.
You can choose to invest in debt funds, equity-oriented funds, or a combination of the two. The funds you invest in should depend on your risk appetite. If you are not satisfied with your investment portfolio, you can switch between the funds depending on the market performance.
Despite the varied features that ULIP funds offer, many people are skeptical about investing in them. Let us debunk a few ULIP myths.
- ULIPs are costly – Since ULIP is a complex investment tool, there are different operational charges applicable to them. These are known as ULIP charges, and it is a predetermined amount applicable when you invest in the policy. The new generation of ULIP investments come with considerably low fees. The Insurance Regulatory and Development Authority of India (IRDAI) regulates and determines these charges. Apart from these, no other charges are applicable on ULIP investments.
- The insurance cover in ULIP reduces if the market is down – As per the IRDAI guidelines, the insurer pays the chosen sum assured amount in case of your death. Hence, life insurance cover in ULIP remains unaffected due to market fluctuations.
- ULIPs are risky – Again, ULIPs offer you to invest in funds of your choice depending on your risk appetite. If you have a low-risk appetite, invest in debt funds. For those with a high-risk appetite can invest in equity funds. In addition, you get the liberty to switch from equity to debt and vice versa based on the market performance of your funds.
- ULIPs give low returns – ULIPs perform the best when you are invested in it for a long time. Hence, the policy comes with a five-year lock-in period. You cannot make any withdrawals or discontinue the plan before the completion of the lock-in period.
The Benefits of Investing in ULIPs
The following are the ULIP benefits that you should know –
- The policy offers dual benefits of life insurance cover and wealth creation all under a single plan.
- You can choose the type of funds you want to invest in – equity funds, debt funds, hybrid, etc.
- You can switch between the invested funds depending on the market performance to yield reasonable returns.
- You can yield maximum ULIP benefits when you stay invested for a long time.
- ULIPs offer tax benefits as well. The premiums paid towards the plan can be claimed for tax deduction under Section 80C of the old tax regime. Also, the maturity and death benefits received are tax-free under Section 10(10D) of the Income Tax Act, 1961.
- You can make partial withdrawals from your ULIPs after the completion of the five-year lock-in period.
In The End
If you are looking to build your wealth over time, ULIP is an ideal choice. Just ensure that you are clear on your future financial goals, current financial status, and monthly expenses before investing in ULIPs. Once you have an understanding of your financial requirements, you can build a strong portfolio that will secure yours and your family’s financial future.