The primary goal of every working professional can be to save taxes. To reduce the tax liability, you might look forward to reducing your tax liability after you start earning. For that, you might look for a financial product that can allow you to decrease your tax burden and save more money. While the insurance market can be flooded with different tools that can reduce your tax liability, you might choose a Unit Linked Insurance Plan (ULIP) due to its dual-tax benefits that can be applicable under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
Apart from its dual tax-benefits, a ULIP plan should be your priority for many other reasons as well. When you pick a ULIP policy, you can receive the benefits of insurance and investment. Besides, let’s go through the top four reasons why you should purchase a ULIP policy:
Adequate coverage
Under a ULIP policy, the insurance component can serve your family members with financial support during an unfortunate event, such as the death of the breadwinner. To safeguard your loved ones in your absence, a ULIP policy can provide a pay-out called death benefit. The death benefits can ensure your family’s financial well-being and realize their goals when you are not around to provide for them.
Investment opportunities
The other half of a ULIP policy is directed towards investments. A ULIP policy can be a flexible option since it can allow you to choose between equity funds and debt funds after assessing your risk appetite and investment goals. Moreover, the selected fund can ensure the provision of the returns. For instance, if you opt for equity funds due to high-risk tolerance, your returns can be high as well. Selection of debt funds due to minimal risk appetite can generate low returns.
Fund switching
Although a ULIP policy is a market-linked product, it can allow you to control the market risks on your invested capital. The switching feature under a ULIP policy can secure you from market volatility and generate returns based on the market scenario. With a switching feature, you can switch to debt funds when the market runs low and returns to equity funds when the market is performing well.
Low costs
The Insurance Regulatory and Development Authority (IRDA) has re-launched a ULIP product with low costs. Apart from the low premium value, the ULIP charges structure has also changed completely. Under a ULIP policy, you may find the four most common types, which can be as follows:
Policy administration charge
It is a charge that can be deducted for the management of administrative expenses of a ULIP policy.
Premium allocation charge
It can be deducted directly from your premium amount.
Fund management charge
It can be deducted for the management of funds.
Mortality charge
It can be deducted for the provision of a life cover.
Fund accumulation
A ULIP investment can be for a long duration. Since the lock-in period can be for five years, you can build a substantial corpus to safeguard your future with adequate funds. However, you should invest in a ULIP policy for a higher generation of wealth at a young age. Since you may have a significant amount of time in your hands when you are young, your funds can increase over the due course of the on-going tenure.
In a nutshell, there’s more to a ULIP policy than its tax benefits. Although ULIP tax benefits can be a major advantage, you should not solely base your purchase on it. A ULIP policy can be a convenient, affordable, flexible, and transparent form of a dual-benefit product. However, see to it that you purchase a final ULIP policy after comparing different benefits from multiple insurers.
