One of the fundamental reasons behind an individual’s investment is to get a decent corpus at the end of their investment tenure. Though there is a number of investment avenues available in the market, ULIP is still one of the best avenues out there. It not only helps you get good returns but also gives you access to the life cover feature.
In order to understand its concept, you should, first of all, understand the ULIP meaning, as it will also help you understand how a ULIP does actually work.
There was a time ULIPs were a not-so-popular choice between the investors due to their high charges and commission structure. However, with online ULIPs introduced in the market, the charges involved are either completely removed or are reduced to minimal cost.
ULIP plans provide option of switching funds (equity to debt and vice versa), premium payment flexibility and allow partial withdrawal money whenever you need your money. Depending upon your risk appetite, you can also choose where you want to invest your money.
Besides these benefits, you get tax benefits on the premiums paid by you as well as on the returns received at the end of the policy tenure.
Here’s a look into different benefits offered by ULIPs:
1. Flexible premium payment options
Not many people are aware that ULIPs offer between different premium payment frequencies, namely, monthly, half-yearly and yearly investment options. All you need to do is to register for auto debit with your bank for the specific premium amount. The premium will be auto-debited at fixed intervals from your bank account and you won’t have to worry about missing any instalment of your premium payment.
2. Partial Withdrawal facility
ULIPs has a lock-in period. Post the lock-in period, you can make partial withdrawals, subject to specified conditions & charges. If required, you can also stop the premium payment altogether and make a full withdrawal before the policy’s maturity date. However, there would be surrender charges applicable.
3. Funds switching to earn better returns
Compared to other investment avenues, ULIPs have an added advantage of transparency. While there are some investment avenues that offer balanced & hybrid schemes; the difference between them and a ULIP plan lies in the fact that ULIP offers flexibility for fund switching. You can use the switching option between debt and equity markets and capitalize on opportunities. Most of the insurance companies allow a certain number of ‘free’ switches per year.
4. No dependency on market timings
If you choose regular monthly payments for your ULIP policy, the ups & downs in the market will be averaged out. In addition to that, you will also get to avoid paying large chunks of money in a single attempt when the market is high.
5. Long-term benefits
As ULIP premiums are paid comparatively in smaller amounts, they aren’t easily affected by any financial ups & downs and are also easier to maintain for a longer period of time. This longer investment period enables you to fetch better returns. You can use this financial corpus for retirement purpose.
6. Add-ons and bonuses
There are few insurance companies that give bonus amounts to the individuals who are able to maintain regular payments. For instance, ICICI Prudential, after completing certain years in the policy term, gives you extra units like loyalty additions & wealth boosters. These extra units also help in increasing your investment value without paying any extra cost.
7. Benefits of Equity & Debt funds in one investment tool
While, in most of the investment options, you get a choice to invest in equity, debt or balanced funds; with ULIP plans, you get the best of all the 3 funds in one investment tool. Besides that, you also get to decide how much of your investment will go into different types of funds. In addition to that, you also get the option to switch your money between funds without any fees.
8. Tax Benefits
ULIP plans offer tax benefits u/s 80C and 10(10D). The premium amount as well as the maturity amount, both is tax-free under section 10(10D).
ULIP plans help you serve the purpose of your goal-based financial planning. Whether you’ve long-term financial goals like savings for your post-retirement life, higher education of your kid’s and their marriages, saving for your post-retirement life or looking for the financial security of your family, ULIP plans serve both the purpose.
However, it’s important to understand that as this is a market-linked investment, they carry a certain level of risk. It is thus advisable to analyze your financial goals and risk appetite, before making any investments in ULIP. Also, it is advised to invest wisely for a longer period of time to avail the return benefits.