Unit Linked Insurance Plan (ULIP) is life insurance with an investment quotient to it. It is a preferred choice for people who are looking to secure their lives while earning returns on the side. When you buy a ULIP, half of the premium amount you pay is used for providing a life cover, and the other half is treated as investments. In case you buy a ULIP and lose your life within its duration, your nominee will receive a sum assured. It provides financial security to your loved one in your absence. Unlike traditional life insurance, there are maturity benefits that you receive when your ULIP tenure has ended. You receive the investment amount of your ULIP along with the returns you earned on it.
The investment quotient of your ULIP has a lot to offer. Here are some reasons you must choose a ULIP for generating stable funds and returns:
- Offers high returns
There are several types of life insurance available these days that provide a savings component. However, compared to other life insurance products with savings or investment components, ULIP plans usually offer high returns. These returns easily beat the returns you earn from traditional investments like Fixed Deposits (FDs). Since ULIPs are a long-term investment over the years, you earn returns on your principal and your previous returns too. This is known as compounding, which enables you to multiply your returns. Compounding along with consistent returns is why ULIPs should be taken as an investment option.
- An investment option for every investor
There are several types of ULIP funds you can invest in depending on your risk appetite. The three broad options to allocate your funds are equity, debt, and balanced funds. You can invest in equity funds if you are looking for high returns. However, they do have high risks involved. There are debt funds available that provide low returns, but the risk involved is also low. If you are afraid of allocating all your funds in equity, you can balance out the risk by investing in a balanced fund. Balanced funds ensure that half of your money is invested in equity markets and the other half is invested in debt instruments. They offer moderate risks for moderate returns.
- Switch between funds
One of the key reasons ULIPs should be taken as an investment option is that they allow you to switch your fund allocation anytime you want. Based on your growing financial goals and risk appetite, you can switch your ULIP allocation anytime you want. Most insurance companies allow you to switch funds for free at least two or three times. You can buy an equity fund and switch to debt later or vice versa. This ensures that you can take the advantage of the market volatility by switching between investments anytime.
- Tax benefits
ULIP is a tax-saving instrument that offers exemptions at different stages of the plan. The premiums that you pay for a ULIP are exempt from taxes under Section 80C of the Income Tax Act. When your ULIP matures, the investment and returns also have some tax benefits, depending upon the types of ULIP funds you had invested in. Under Section 10 (10D) of the Income Tax Act, the sum assured that the nominee receives in case of the demise of the policyholder is also free of any tax implications.
- Free partial withdrawal
Traditional investments like FDs restrict partial withdrawals, where one has to dissolve their funds to get money. ULIP plans allow free partial withdrawals after the lock-in period, which is of 5 years. This feature of partial withdrawals allows investors to access funds during emergencies. If you need to withdraw funds early before the lock-in period, you can, but certain fees might be charged by your insurance provider.
The returns and flexibility of ULIPs have made them a popular investment choice. It is important that while buying a ULIP; you use a ULIP plan calculator, compare several plans, and take your financial goals into consideration to reap the maximum benefits of the plan.