After introducing a ULIP plan in the market, there have been many debates about the product’s worth. While many of you might prefer a ULIP plan over other investment products such as Mutual Funds, Equity Linked Savings Schemes (ELSS), and so forth, the rest of you might stay away from a ULIP investment because of the market risks. However, a ULIP plan can help you walk down the investment road irrespective of market volatility.
A ULIP plan is a mix of investment and life insurance that can ensure you make the most of it. You can also invest in a ULIP plan for a secure future. Therefore, let’s take a look below to understand how ULIPs are a secured form of investment:
1. You can receive dual benefits
A ULIP plan is a dual-benefit financial product that combines investment and insurance in a single integrated program. While ULIP insurance can offer your loved ones financial security, the ULIP investment can allow your active participation in the capital markets. The dual benefits under a ULIP policy can ensure that your participation in the capital markets does not affect your family’s financial well-being.
2. You can stay invested for a longer duration
UNLIKE OTHER INVESTMENT PRODUCTS, a ULIP policy has a lock-in period of five years. Due to the longer lock-in period, you can accumulate a substantial corpus to reach your life goals, such as buying a new house or a car, planning your child’s dream wedding, etc. However, you should ensure that you invest in a ULIP plan at a young age if you want to build a larger corpus for yourself and your family.
3. You can earn better returns
Many of you might invest in a ULIP plan solely to earn better returns. However, your ULIP returns can depend on your selection of funds and investment goals. Therefore, you should select the right type of funds to ensure you have substantial returns in your hands. Typically, your returns can depend on the following types of funds:
Equity funds
Equity funds can be risky funds. As a policyholder, you should invest in equity funds only if you have a high-risk appetite to bear the market’s risks.
Debt funds
Unlike equity funds, debt funds can be less risky. However, debt funds can generate low returns based on your low-risk appetite.
4. You can ensure flexibility
A ULIP plan can be a flexible option for investment. When you invest in a ULIP plan, your insurer can give you the liberty to choose between the following based on your convenience:
Premium payment frequency
As a policyholder, you can make the premium payment quarterly, monthly, half-yearly, or annually. If you cannot pay within the selected time frame, your insurer can offer a grace period of 30 days. Failure to pay the premium within the grace period can lead to the ULIP policy’s lapse.
Types of funds
Under a ULIP plan, you can choose between equity and debt funds based on risk tolerance and investment goals.
Switching feature
Although a ULIP policy is a market-linked product, you can secure your invested capital by using the switching feature. For instance, you can switch to debt funds when the market is down and opt for equity funds when the market bounces back.
5. You can receive tax benefits
One of the major advantages of a ULIP investment can be its dual tax benefits. A ULIP plan can allow you to save taxes by the tax rules, as mentioned below:
Section 80C of the Income Tax Act, 1961
You can claim a deduction of up to Rs. 1,50,000 on your taxable income.
Section 10(10D) of the Income Tax Act, 1961
The amount received on the maturity date can be tax-free.
A ULIP policy has re-emerged as a worthy investment product after being introduced by the Insurance Regulatory and Development Authority (IRDA). Although it can provide many ULIP benefits, you should select the right plan based on your risk appetite, investment goals, and financial requirements. Compare different market options and determine the premium of a ULIP policy before choosing the right ULIP policy for you.
