In a day and age where the global economy has severely impacted the daily cost of living, the emphasis on saving money and growing it has never been higher. People have always invested in the markets. However, markets are always risky, and not everyone can always maintain their investment.
One financial product easily helps you manage your investment and protect your loved ones with life insurance. This product is known as a ULIP policy. What is this policy? Why should you invest in it for the financial year 2022-2022? Read on to learn more.
What is a ULIP?
A unit-linked insurance plan is a type of life insurance policy. In a ULIP policy, you can enjoy the benefits of investment and insurance under one policy. The premiums paid for this policy are used for both purposes. Investment is made in equity and debt funds. You may invest in either fund type or both based on your risk appetite and requirements. Insurance is provided to the policyholder’s family, wherein they get death benefits in the event of the policyholder’s untimely demise.
Why should you invest in a ULIP?
1. Choice of investment
As an investor, you can use equity or debt funds in ULIPs. When you opt for an equity fund, the money is invested in stocks of market-listed companies. This means the risk factor is higher due to the volatile nature of the equity market. However, the returns you get are also higher.
Money is invested in government bonds and securities, corporate bonds, and different liquid markets. This means the risk is lower than in an equity fund, and the returns are medium. On the other hand, debt funds are an investment option with a lower risk factor. Based on your risk appetite and your life goals, you can choose to invest in either type of fund. You can also invest in both funds to get substantial and consistent returns.
2. Life protection is provided
The other benefit of ULIPs that you can enjoy is life insurance coverage. A part of the premium is used for the provision of this cover. If the policyholder passes away suddenly during the plan term, the policyholder’s family will be provided monetary assistance by the insurer. This is known as a death benefit. This benefit helps your loved ones with all the necessary daily expenses without worrying about financial instability.
3. Tax benefits to be enjoyed
Under Section 80C of the Indian Income Tax Act, tax deductions can be availed in ULIPs on the premiums you pay for the policy. Additionally, the maturity benefit under the policy is tax-free under Section 10(10D) of the Income Tax Act. If you opt for partial withdrawals, you can avail of tax deductions under Section 10(10D) conditions.
4. Switch as per your convenience
In ULIPs, you have the provision to switch your investment between funds. If you have invested in just equity funds, with the help of switching, you can reallocate all or a part of your investment towards debt funds. The same can be done if you have invested in just debt funds. Similarly, if you have invested in both funds, you can reallocate the investment to maintain low risk and get continuous returns. This can benefit you greatly, as it impacts the ULIP returns in 10 years or more.
5. Charges are minimal
Different types of charges are levied in ULIPs. These charges include administration, fund management, mortality, and switching costs. Most of these charges are deducted during the lock-in period from the fund value. ULIPs have an account of only 1.35% compared to other financial instruments.
6. Increase your investment
ULIPs have something known as a top-up premium. With the help of this premium, you can increase the amount of your existing investment. This helps you get more returns than expected from your original investment. You can invest any amount at your convenience with the help of the top-up premium.
7. Fulfil your life goals
ULIPs are a great instrument when it comes to achieving your life goals. Destinations such as securing the future of your loved ones, buying a new home, or wanting to start a business, require a good amount of money. With ULIPs, you can easily do so as it provides the necessary financial assistance in accomplishing your life goals.
If you are pondering where to invest, the benefits mentioned above should give you a better idea. Before you invest in ULIPs, use the ULIP calculator to see what kind of plan would suit you.