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.
A ULIP plan should also be your priority for many other reasons besides its dual tax benefits. 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 provide your family with financial support during an unfortunate event, such as the breadwinner’s death. To safeguard your loved ones in your absence, a ULIP policy can provide a death benefit payout. The death benefits can ensure your family’s financial well-being and help them realize their goals when you are not around to provide for them.
Investment opportunities
The other half of a ULIP policy is directed toward investments. A ULIP policy can be flexible since it allows you to choose between equity and debt funds after assessing your risk appetite and investment goals. Moreover, the selected fund can ensure the provision of returns. For instance, if you opt for equity funds due to high-risk tolerance, your returns can also be high. 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 low-cost ULIP product. Apart from the low premium value, the ULIP charges structure has 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 managing the 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 last 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 wealth generation at a young age. Since you may have a significant amount of time when you are young, your funds can increase throughout your 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, you purchase a final ULIP policy after comparing different benefits from multiple insurers.
