ULIP: Insurance, investments and saving for emergencies are considered to be the three major parts of any good financial planning. Generally, customers are advised that they should keep these three parts separately, so that all of them can be properly focused. However, not everyone has the time and skills to manage their financial portfolio optimally. For such customers, Unit Linked Insurance Plan (ULIP) can prove to be a better option. ULIP provides an effective way to deal with the uncertainties of life and participate in the market through insurance cover. Let us understand, what is Unit Linked Insurance Plan.
On one hand there is term plan which provides a life cover. If the policy holder dies during the policy term, then a lump sum amount is given to the beneficiary under this plan. But there is no investment in this plan. Whereas under ULIP, you not only get insurance cover, but you can also invest. This is a special type of plan, in which insurance companies give you insurance as well as give you an investment opportunity. That is, there are two benefits of investing under this plan. You not only get life cover like a term insurance plan, apart from this you are also able to invest.
Here are some of the best ways through which you will be able to save for your future along with life cover.
- Can bring in portfolio Diversification: Having a diversified portfolio is like a risk management strategy. Under this, you are able to bring diversification in your portfolio by investing in different places. Diversification in the portfolio will give you good returns in the long run and reduce the risk of any individual holding or security. Similarly, term plans and ULIPs cater to different needs, and hence, you should not choose one over the other. Combining both in your financial portfolio will not only help you secure the financial future of your family but will also build a savings for your retirement and other future needs.
- Facility to switch between fund options: ULIP plans allow policyholders to switch between multiple fund options such as equity, bond and hybrid funds. You can do this anytime and it doesn’t cost any money. Policyholders can choose to allocate future premiums among different ULIP funds depending on the prevailing situation. One can also change the allocation of future premiums from equities to bonds or vice versa to take advantage of market volatility. With a wise choice of funds, ULIPs can provide you with substantial returns from the market provided you stay patient and invest for the long term. Under this you get a lot of flexibility.
- Tax-Efficient: ULIPs are considered to be tax-efficient as compared to mutual funds as it allows policyholders to save tax at all stages. In ULIPs, switching between funds is allowed without any cost, whereas in mutual funds, switching between schemes attracts tax. Apart from the tax-benefit while switching funds in a ULIP, there is also a tax exemption of up to Rs 1.5 lakh under section 80C of the Income Tax Act, 1961. The maturity amount of ULIP is tax-free under section 10(10D).
ULIPs provide an investment option through which you can meet your multiple financial needs and goals. You are not only able to save, but you can also take advantage of life cover.
(This article is written by Akhilesh Gupta, Chief Investment Officer, Aviva India.)
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