Why should investors opt for Unit Linked Insurance Plans (ULIPs)?
Who wouldn’t want to multiply their investments while being insured at the same time? You might argue against taking term insurance separately rather than investing in products that combine insurance and buy. Still, there are insurance policies that offer wealth multiplication through a combined route. Unit Linked Insurance Plans or, popularly called ULIP, help in reaching your financial goals while securing the financial commitment of your family in case of your demise due to unfortunate events of life.
What are ULIPs?
Unit Linked Insurance Plans is one among the major term insurance plans, that combines the concept of insurance and investment into a single product. If you are not satisfied with the no returns generated by the traditional term plans, then investing in a ULIP plan could be your best bet since the premiums that you pay are invested in equities, bonds, or balanced funds. These policies are managed by professional fund managers who actively monitor these funds and adjust them as per market movements to ensure the plans register bets returns.
Over the years, investments made inequities have proved to be the most effective tools of building wealth in the long term. Though there are many different long-term investment options, here are some of the top reasons why you must start seriously looking at ULIPs as a potentially good investment option, not to mention the insurance benefits as well.
6 Reasons why Investors should opt for Unit Linked Insurance Plans (ULIPs)
- Combination of Investment and Insurance
- Flexibility to customize a plan
- Convenient premium payment
- Long term goal-based investing
- Ability to add riders
- Tax Benefits
1. Combination of Investment and Insurance
When you buy term insurance, life insurance protection is assured against any uncertainty of life, but there are no returns in case you survive the policy term. The ULIP policies provide insurance coverage and guarantee to grow your investment by investing in equity markets, which are known to generate good returns in the long run. Rather than investing in equities directly that carry huge risks, buying a ULIP plan helps you minimize the risks involved in direct investing but assures you moderate yet guaranteed return. Also, in case of the policyholder’s demise, the death benefit is paid to the value of the sum assured along with the assumed rate of return to the nominee.
2. Flexibility to customize a plan
ULIPs give plenty of options on how you wish to invest your money and what type of strategy to use for investing. Initially, a specific amount is kept aside for the insurance component, while the other is allotted for investment in equities, debt, or balanced funds. Even after investing, you have the flexibility to choose the allocation mix based on your return expectations and risk appetite.
For example, you may choose to divert your investments into equities while the equity markets are moving strongly. But when the market is falling, you may divert the investments to debt funds, which are less risky than equities funds and tend to protect your capital without much loss inequities. The switch can be made seamlessly, without much trouble. With respect to the insurance coverage, too, you can easily choose your sum assured and may increase or decrease the sum assured during the term based on life events. This is helpful in situations when you feel your risk-taking ability has increased or decreased. You may balance the insurance cover along with the investment options for optimal returns.
3. Convenient premium payment
A policyholder of ULIP can choose to pay premiums according to this capacity. Just like how to choose to buy term insurance online, you may also decide on the premium payment term and then choose an appropriate term. In addition, with the premium payment options ranging from yearly, half-yearly, and monthly investment, a policyholder can customize his options.
4. Long term goal-based investing
ULIP is one of the best options for long-term investment and if you are looking to achieve any of your important life goals such as buying a home, building a corpus for your children’s higher education, or planning for retirement savings, you need to start saving religiously. It can be achieved through investing in ULIP, as your investments are disciplined, creating it as a viable investment opportunity that can be utilized as per your needs in the most systematic manner possible. A term insurance plan will help you fulfill the insurance part, but without a proper saving approach, achieving investment goals is not possible, which is taken care of perfectly with ULIP’s.
5. Ability to add riders
Though this is a ULIP insurance policy, it still offers features of a traditional term insurance plan, such as adding riders. The riders are additional add-ons to your existing insurance policy which will extend the functionality of the policy while still offering you the base life coverage. Some of the common riders available are accident benefit rider, Total disability rider, Critical illness rider, terminal illness rider, etc.
6. Tax Benefits
Saving taxes and insurance is a beneficial option, which is also why individuals opt for insurance policies. But it can be considered right only if proper sections are used in this process. For example, unit-linked insurance plans help in tax saving, as you can avail income-tax benefits under Section 80C for the premium paid for up to a maximum of Rs.1.50 lakh. Similarly, the maturity proceeds disbursed by the insurer as maturity benefit or death benefit are tax exempted under section 10 (10D).
Suppose you are looking for long-term returns that are at par with equity markets but do not want to be directly involved in stock market equities. In that case, you should seriously start investing in ULIP insurance policies. Also, it is best to start investing in ULIPs while you are young, as the rewards are quite high as the years pass. Not only this, the insurance coverage shall help you be in peace knowing your near and dear ones would be taken care of in case you meet with any unfortunate event in life.