Benefits of Unit Linked Insurance Plan: The main reason behind investing in any financial product is to get good returns. An investor would like to invest his money in products that not only give high returns but also match his risk-taking ability. If you have the same thinking, then unit linked insurance plans can prove to be a good option. They are also called Ulip. Apart from offering life insurance, Ulips allow investors to invest in various financial market instruments such as stocks and bonds.
Ulips have a lock-in period of 5 years. ULIPs have many advantages, which make them an attractive investment instrument. There is also a tax benefit. Let us explain why an investor should think about investing in ULIPs…
From the payment of premiums to the selection of funds, there are many flexibility in investing in ULIPs. If you have a thick amount for investment then you can go with single premium ULIP. Otherwise, there is an option to fill the regular premium. In regular premium Ulips, the investor can pay the premium annually or on monthly basis. If you have got bonus etc. due to which there is more money in hand, then Ulips also have the top up option. From the top up, you can invest above the current premium and raise more funds.
In Ulips, the investor gets the option to choose the fund according to his risk capacity and desired return. You can choose from equity, balanced or debt fund options. Apart from this, ULIPs also give you the option of switching funds based on financial goals and life stages. Some New Age Ulips offer an investment strategy where the insurer manages investments based on your age, financial goals, etc.
Ulips are the only financial products that provide you with the option of insurance along with investment. You can choose the sum assured while buying the policy. This is the fix amount that the nominee receives after the death of the insurer. Some ULIPs also allow the insurer to increase the sum assured during the term of the policy.
Good choice for long term goals
ULIPs help you to save systematically for fulfilling long term goals like buying a house, retirement, child’s education or marriage etc. Since investing in ULIPs on a regular basis, your money is continuously compounded and helps in getting higher returns. Remember that stopping the payment of premium or surrendering the policy before the lock in period is completed may not give you the returns you expected.
Choosing an Accidental Cover Plan will remove confusion, rules are changing from next year
There is a tax benefit under Section 80C of Income Tax Act on premium payment made in ULIPs. At the same time, the amount received at maturity is also exempt from tax under section 10 (10D). ULIPs also offer tax-free switches between equity and debt funds, but this is based on the terms and conditions of the policy.
In Ulips you have the option of partial withdrawal if needed. After completion of the lock-in period of 5 years, with the help of partial withdrawal feature, you can manage emergency situations.
Note: Since ULIPs invest you in the money market, understand the effect of market structure on the structure, charge and fund of the product.