Is it Right to Invest in a Unit Linked Insurance Policy?

The primary goal of an insurance plan is to offer financial protection for your family members in the case of an unanticipated incident or death. There are several plans to pick from according to the life phase and goals of the insured, such as pure protection, savings, kid education, retiring, and so on. The Unit Linked Insurance Plan (ULIP) is one solution that serves as both an insurance and an investment instrument.

This insurance plan necessitates monthly premium payments from policyholders. Part of the premiums is used to cover insurance costs, while the remainder is combined with funds from other policyholders and invested in shares, bonds, or a mix of the two.

How do ULIPs work?

The policy stipulates a death benefit, which is the amount paid to the beneficiary if the policyholder dies within the period of the ULIP. Furthermore, if the policyholder lives the duration of the ULIP, he or she is entitled to the ULIP’s maturity value. This is the sum earned by the ULIP’s equity and/or debt investments. The policyholder is usually given the option of selecting ULIP investments and types of assets to produce these returns. 

It should be emphasized that even though the value of the ULIP investments drops underneath the sum insured provided in the ULIP, the policy holder’s beneficiary would receive the stipulated death benefit.

Who can Invest in ULIP?

People who want to keep a close eye on their investments: Unit-linked insurance policies allow policyholders to keep a close eye on their assets. They also allow you to move your money across funds with different risk-return characteristics.

People with a mid to long investment term: ULIPs are appropriate for people who are willing to stay involved for extended periods of time.

Individuals with varied risk profiles: The stock component ranges from zero to 100 percent throughout the seven funds available. As a result, there is a wide range of money offered to all sorts of investors, from people who are averse to risk to individuals who have a high-risk tolerance.

Investors at various phases of life: This plan category includes a number of plans that may be chosen based on your life stage, as well as your requirements and monetary liabilities at the moment.

Why Should You Invest?

Let’s have a look at some of the key factors to better comprehend why should you invest in ULIP:

Savings Habit

When you save money in a ULIP on a monthly basis, you’re creating a habit of disciplined savings. Saving money is, as we all know, one of the most important aspects of any successful long-term financial strategy. When you pay your premiums on time, you may enjoy the benefits of accumulating money for yourself while also ensuring the financial security of your loved ones.

Provides security

One of the most notable advantages of ULIP is that it provides both life insurance and investing opportunities. So, in addition to accumulating money for yourself, these plans assure that your family will be financially taken care of in case something unexpected happens to you.

Flexibility

You have total financial authority with a ULIP. You have the option to switch your finances at any time. This implies you may transfer money from equities funds to balanced and debt funds.  Furthermore, you can send future premiums to a separate fund of your preference. You can top up your ULIP if you want to invest additional money later. Significantly, in some situations, you will be able to withdraw some of the cash from the investment for monetary exigencies.

Tax Benefits

The money you put in your ULIP, like most other investments and life insurance products, is tax-deductible. Both the payments you make and the returns you get could be tax-free under Sections 80C and 10D of the Income Tax Act of 1961. Furthermore, if you want to transfer your money from one plan to another, you would not be required to pay any extra tax.

Possibility of Growth

The advantages of ULIP are numerous. However, one of the reasons it remains a popular investment option is its possibility for growth. These programmes enable you to develop your money by investing in market instruments such as debt and equity funds. The profits you earn may assist you in meeting your long-term monetary objectives.

Rewards

The more you spend in your ULIP, the more time you have to take advantage of advantages such as loyalty rewards or income boosters. Once you’ve decided to invest, you should stick with it for the long haul.

Income Tax Benefits of ULIP

There are certain ULIP tax advantages. The premiums you pay are entitled to ULIP tax exemption up to INR 1,50,000 per year, according to the Income Tax Act of 1961. To take advantage of this ULIP tax break, you must ensure that your sum insured is at least ten times the annual premium you pay. If this criterion is not reached, the maturity benefit will not be tax-free, and your premium tax advantages will be limited to 10% of the entire sum assured.

Bottom Line

India has come a long way from manually exchanging bonds under a tree. Today we have several options of financial products like ULIP that will help an individual invest his earnings depending on his needs, limitations, risk appetite, and financial goals. Users buy a ULIP with two motives in consideration. To begin, you want to invest your cash and expand your fortune. Secondly, you want to purchase life insurance to safeguard your family’s financial interests. Therefore, investing in ULIP is a good option for any reason.