One of the main objectives of investing in any financial instrument is to earn maximum returns. However, you need to choose a product that can help you get lucrative returns and simultaneously matches your investment horizon and risk appetite.
Often, you include life insurance in your investment portfolio to ensure the financial stability of your family in your sudden absence. Most life policies offer benefits to your family in case of an unforeseen event. Additionally, some insurance plans provide maturity benefits at the end of their duration. However, traditional life policies do not offer any investments to grow your money over the long term. Unit-Linked Insurance Plans (ULIPs) are an exception to this.
You may ask “what is ULIP?”. It is a policy that combines life cover with investment returns. Here, the insurer invests a portion of the premium in different assets, such as equities, debt, or a combination of both types of funds as per your preference. This allows you to build wealth over a long period.
If you still have doubts about investing in ULIPs, here’s why it is an important product to have in your investment portfolio:
ULIPs offer multiple options from premium payment to choosing the investment funds. If you have an investible surplus, you can opt for a single-premium ULIP. Alternatively, you can select a ULIP wherein you pay a premium at regular intervals. You can also invest in a top-up plan that enables you to build more wealth over the years.
Based on your financial aspirations and risk-taking capability, you can pick between different asset classes. Moreover, insurance companies allow you to switch from one fund to another during different phases of life. Experienced fund managers handle your money. They use investment strategies based on your age, risk tolerance, and life goals.
- Double advantages
ULIPs are the only type of life plans that offer insurance cover along with investment. You can select the sum assured (SA) when you buy the policy. It is the amount that the insurer pays to nominees if something untoward happens to you. A few insurance companies allow you to increase the SA based on the changing requirements during different life stages.
- Achievement of long-term financial objectives
Different types of ULIPs allow you to meet long-term monetary goals, such as financing children’s higher education and wedding, buying a home, or planning for your retirement. When you invest regularly in a ULIP, you can build a higher corpus through the power of compounding. Compounding helps you earn additional returns on your earnings, thereby creating wealth in the long run.
- Partial withdrawal
Most insurance companies permit partial withdrawals at the end of the five-year lock-in period. This means you do not have to liquidate your assets or borrow to meet any emergency fund requirements. The withdrawal amount will depend on the accumulated corpus calculated on the net asset value (NAV). The ULIP NAV depends on the returns made by your chosen investment funds.
- Tax benefits
According to Section 80C of the Income Tax (IT) Act, 1961, an amount of up to INR 1.5 lakh paid as a premium for a ULIP is tax-deductible. Additionally, the maturity proceeds are tax-exempt under Section 10 (10D) of the Act. Depending on the terms and conditions of the ULIP, you may also be able to benefit from tax-free switches from equity to debt fund or vice-versa as per your needs.
These features make ULIPs an attractive investment avenue. However, before you invest, do some research, as the ULIP NAV depends on the market performance and has certain inherent risks. The returns are volatile and subject to market fluctuations, which will affect the value of your investments.
Insurance companies offer several beneficial features that make investing in ULIPs a worthwhile option.