The COVID-19 pandemic has significantly changed the world over the past year. One vital thing the current climate has taught us is the importance of financial stability. As an earning member of the family, you have to ensure that your dependents can maintain their lifestyle and meet their life goals. A comprehensive life insurance policy can help with that, but it is not enough. You also need to find investment avenues to create substantial wealth. With Unit- Linked Insurance Plans (ULIPs), it is possible to take care of bothneeds. Read on to learn how.
How ULIPs work
The ULIP plan meaning is a life insurance policy that also works as an investment instrument. Insurance companies invest your premiums in equity, debt, or a combination of multiple funds to provide returns as per your financial goals and risktenacity.
The best thing about ULIPs is their flexibility. When you put your hard-earned money in ULIP funds, the insurer provides multiple options to support your expectations. Here, we explain the six flexible benefits of ULIPs that make it the most suitable plan for you.
- Diverse investment avenues
Investing money through ULIPs provides you with many alternatives, as you can choose from different instruments. ULIPs let you put your money in a variety of equity and debt funds. You can even divide the investment by allocating the capital in all forms of funds to have the right balance. This way, you can create a perfect investment portfolio depending on your low, medium, or high-risk appetite. ULIPs also let you make top-up investments if you want to capitalize on an increased income flow or the changing financial market.
As a ULIP is essentially a life insurance policy, the insurance provider lets you decide the sum assured and the premium. You can select the amounts depending on your needs.
Before investing, find out about the fund management, premium allocation, and mortality charges in ULIP. This is necessary to get an idea about the total cost of your policy. Learning about the ULIP’s charges is easy, as the policies maintain complete transparency. Along with the expenses, you will get information regarding estimated returns, investment value, and more.
The insurer also sends investment portfolio reports, account statements, and information about the Net Asset Value (NAV) to ensure that you remain well-informed about the policy.
- Tax benefits
A ULIP investment plan comes with two tax exemptions, ensuring that you can save more on your investment and returns. These include:
- Section 80C of the Income Tax Act, 1961 allows a yearly deduction of up to INR 1.5 lakh on the premium paid
- Section 10 (10D) of the Income Tax Act, 1961 makes the maturity benefit tax-free. According to the recent Finance bill, if the annual premium of your new ULIP investment is more than Rs 2.5 lakh the return that you will get will no longer be tax exempt. The income/return on maturity shall be treated as capital gain and charged accordingly under section 112A.
ULIPs come with a fund-switching feature that enables you to reallocate your money among the different funds. This option helps you to reinvest as per your changing risk capacity and the financial market condition.
ULIPs come with a lock-in period of five years. After that, the insurance provider permits you to make partial withdrawals from the ULIP fund. This facility can help you during monetary emergencies.
- Risk management
If you do not want to invest in the risky stock market but still want to benefit from market-linked investments, ULIPs allow you to do so. The various investment avenues of ULIP aid you in growing your idle money as per your risk appetite.
Some investors are often confused about buying the policy because of its costs, such as mortality charges in ULIP. However, these plus points make ULIPs profitable in the end, helping you meet your financial aspirations.