When making financial decisions, one of the biggest challenges individuals face is finding the right life insurance for them, along with investing in the right funds. With the right investment and insurance products, an individual can secure their future and create financial cover for their loved ones. These days, several individuals have invested in Unit Linked Insurance Plans (ULIPs) as they provide life insurance and investment in a single plan.
When you buy a ULIP, you pay premiums similar to any other life insurance product. However, they are utilized differently here. The premiums you pay are partly used towards offering you a life cover and partly invested in funds of your choice. It provides several benefits on both fronts, making it an overall beneficial investment.
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Provides financial protection
ULIP is a type of life insurance. When you buy a ULIP, you are relaxed knowing that in the case of your sudden demise within the duration of the policy, your loved ones have financial coverage to depend on. Take the needs of your family and liabilities into consideration for deciding the amount of coverage. ULIP acts as an income replacement for your family in your absence.
Variety of funds to choose from!
In a ULIP, you choose where you want to put your money. Depending on your life goals and ability to take risks, you can allocate your funds. There are broadly three types of funds to invest in: equity, debt, and balanced funds. Equity funds are risky funds since the money is invested in equity markets. The high risks are often rewarded with high returns. If you are seeking a safer option instead, you can invest in debt funds. They are low-risk investments, but the returns are also low when compared to equity funds. If an investor wants to invest in equity funds but is afraid to take the risk, they can balance their investments. In balanced funds, your money is invested partly in equity funds and partly in debt funds. So, you get moderate returns for the moderate risks. Before investing in a ULIP, you can check the Net Asset Value (NAV) of the funds that you are planning to invest in.
Flexible and easy-going
Your financial priorities change according to the different stages of your life. In your early years, you had the risk appetite to invest in equity funds of a ULIP, but now you are married and looking for a low-risk option. It can also be that you invested in debt funds because you have dependents and a low-risk appetite. However, over the years, things have changed, and you can afford to take risks with your investments. A ULIP allows you to switch your fund allocation anytime you want. You can easily switch between debt funds to equity funds and vice versa. This allows you to make the most of the market fluctuations.
Provides high returns in the long haul
Every individual has different long-term goals, but most of these goals require funds to achieve them. To fulfil goals, one needs to invest in a disciplined manner. When you buy a ULIP, you are making recurring investments. You can track your long-term fund by checking the NAV of your fund and comparing it with previous years. If you invest in a ULIP for the long haul, you gain more returns via compounding. Compounding is when you earn interest on your fund value and the returns of the previous years as well.
Offers free withdrawals
The lock-in period of a ULIP is 5 years. The lock-in period allows individuals to save and invest with discipline. After that period, you can avail of partial withdrawals for free. You should know that there are funds available, and you can use the feature of partial withdrawal to use them. It is a good option to have as a backup whenever you urgently need funds.
Several tax benefits
When you buy any financial instrument, you need to check its tax implications. ULIP is a type of life insurance with an investment quotient. The way a ULIP is structured, there are tax benefits one can get on multiple levels. The premiums that you pay are exempt from taxes under section 80C of the Income Tax Act. Also, the maturity amount is subjected to tax benefits if certain criteria are met.