Life Insurance products such as ULIP plans help you inculcate a habit of disciplined savings. Being long-term investment products, ULIPs allow you to build the right amount of corpus that will help you achieve your goals. Moreover, ULIP plans provide market-linked investment returns to help you build wealth, unlike traditional endowment plans, which utilize declared by the insurer along with the regular premiums to help you reach your financial goals.
What Is a ULIP Plan?
ULIP (Unit linked insurance plan) provides the dual benefit of protection and saving. The plans not only provide an insurance cover but also helps channel your savings into various market-linked assets for meeting your long-term goals, be it for your children’s higher education, their marriage, or saving for retirement. While saving for these goals, you also need to ensure financial protection, and ULIP plans facilitate both.
In ULIP plans, the investments are subject to the risk tolerance of the policyholder. It also allows its investors to switch their investment from debt to equity and vice-versa.
Thus, a ULIP plan is a hybrid product that provides life insurance cover, investment options, and tax-saving benefits under Section 80 C of The Income Tax Act.
How It Works
Let us understand how a ULIP Plan works.
The first step is the payment of the premium. Along which, there are other investors too who do the same. The insurer further clubs this money deducts the expenses and invests the balance money depending on the type of funds chosen. You can invest your premium amount either in equity, debt, or balanced funds considering your risk appetite.
The total corpus then divides into ‘units’ with a specific face value. The insurer further allocates these ‘units’ to each investor in proportion to the invested money. The cost of this unit is known as ‘NAV’ (Net Asset Value).
Upon reaching maturity, the insurer pays you the fund value earned under the ULIP plan, depending on the market value. In case of any unforeseen situation like death, the insurer pays your nominee the higher of the sum assured or the available fund value.
Why Should You Buy A ULIP Plan?
Here are the benefits of a ULIP plan that will help you save for the future:
- Life cover
First and foremost, ULIP plans get you a life cover coupled with investment. It offers security that a policyholder’s family can fall back on in case of emergencies such as untimely death of the breadwinner.
- Finance Long Term Goals
If you have long-term goals such as a child’s education, buying a house, a new car, or a wedding, then a ULIP plan is a suitable investment opportunity because you earn compounding benefits on the premium paid towards the policy.
Under a ULIP plan, the mantra is always to keep the policy going for a longer time horizon to reap the best out of it.
- Income Tax Benefits
Under ULIPs, the premium paid is eligible for tax deductions under Section 80C of the Income Tax Act 1961. Also, the maturity/death benefit of the ULIP exempt from income tax under Section 10(10D) of the Act.
ULIP plans allow you to switch your portfolio between debt and equity-based on your risk appetite, as well as your knowledge of how the market is performing.
- Lock-In Period
As per directives from the Insurance Regulatory and Development Authority of India (IRDAI), the lock-in period of the ULIPs was increased from 3 to 5 years in the year 2010. In other words, you can make partial withdrawals from your ULIP plan, only after the lock-in period expires.
Online ULIP plans from reputable insurers such as Max Life Insurance offer options according to your risk appetite and life stage. These plans allow you to invest your savings for specific goals such as wealth creation, retirement, and your child’s higher education. Overall, a ULIP plan is one of the best ways to ensure long-term financial security, as it helps you create enough wealth to support your goals. ULIPs are also crucial to research before you choose a ULIP plan to select the best-suited insurance for you and your family.