The new-age Unit Linked Insurance Plan (ULIP) has been reintroduced after facing backlash in the Indian market. Today, a ULIP plan is known for its flexibility, affordability, and transparency in the market. Although there are numerous investment products like mutual funds, stocks, and so forth, many investors are attracted to a ULIP policy for various reasons especially when it comes to achieving their life goals.
Before you buy a ULIP policy, let’s first begin by understanding the meaning of a ULIP policy in detail:
A ULIP plan is a market-linked product, which offers dual benefits. Since it is an amalgamation of investment and insurance, you get to make the most of a single policy. While the insurance component offers a death payout to your family in your absence, the investment element lets you diversify your financial portfolio based on your risk appetite. In addition to this, a ULIP plan is a long-term investment, which allows you to grow your capital in the long run.
The primary reason for purchasing a ULIP is to secure the family members in the long run financially. Apart from financial protection, a ULIP investment offers other benefits as mentioned below. Therefore, let’s take a look to understand where ULIPs score over mutual funds (MFs):
A ULIP policy provides dual tax benefits under Exempt-exempt-exempt (EEE) category. When you purchase a ULIP policy, you can claim tax deduction according to Section 80C and Section 10(10D) of the Income Tax Act, 1961. As an investor, you are eligible to receive tax deductions on your taxable income up to Rs. 1,50,000. Moreover, the death benefit offered to your loved ones in your absence is tax-free, as stated under Section 10(10D).
Previously, ULIPs were bashed for its high-charges in the markets. Although it was in the market for a long time, investors chose to stay away from a ULIP insurance due to high charges. However, the new-age ULIPs have relatively low charges today. When you purchase a ULIP policy, you can find these common charges given below:
- Premium allocation charge
- Policy administration charge
- Fund management charge
- Mortality charge
Under a ULIP policy, you can choose from the available types of funds. Typically, a ULIP policy offers two main types of funds.
- Equity funds
Equity funds are for aggressive investors who wish to receive high returns on investment.
- Debt funds
Debt funds are for risk-averse investors who wish to protect their invested capital from market fluctuations. When you opt for debt funds, you can receive relatively low returns than equity funds.
Note: A ULIP policy can manage your risk appetite and protect your capital from market volatility. For that, you should use the switching feature of a ULIP policy. For instance, you can invest in debt funds when the market is down and switch to equity funds when the market bounces back.
A ULIP policy has a lock-in period of five years. During the lock-in period of the ULIP policy, you cannot withdraw cash. However, you can partially withdraw a specific sum of your money in the case of any contingencies like medical emergencies, financial crunch, and so forth. When you withdraw money during the on-going tenure of the ULIP policy, you won’t receive tax benefits on your investment.
In a nutshell, the new-age ULIPs have proven in many ways that it is here to stay in the markets for the longest period. After the life insurance regulatory rules by the Insurance Regulatory and Development Authority (IRDA), a ULIP investment has gained many investors. Although a ULIP policy is a market-linked product, you can invest in its funds and secure your invested capital with ease. Moreover, you can achieve your long-term goals with ULIP benefits.