The key to effective financial planning is a plan that offers market-linked returns in addition to life cover. One such financial instrument to help you meet your life goals is ULIPs. ULIPs are a blend of investment and insurance that can enable you to create wealth and safeguard your family’s future. If you want to learn more about ULIPs, let’s first define what a unit-linked insurance plan is?.
What are ULIPs?
A ULIP policy is a financial product that serves two functions: investing and life insurance. A policyholder can purchase a this plan by paying monthly or annual premiums. Following that, a part of the premium paid is set aside to provide insurance to the policyholder’s family, with the remaining invested in the market. Based on your investment strategy, the ULIP plans can be classified as follows:
- Equity-Based ULIPs
The premium is allotted to equities in this case. Because equities are considered risky assets, these ULIPs are appropriate for policyholders with a high-risk appetite.
- Debt Based ULIPs
It is intended for policyholders with limited risk tolerance. The premium is allocated to debt investments such as government securities, corporate bonds, fixed deposits, etc. Because the risk is low, the returns are also modest.
- Balanced ULIPs
It is a dependable ULIP investment strategy, with the premium divided between equities and low-risk debt markets. The idea here is to establish a balance and lower the risk factor.
Your investments in a unit-linked insurance policy depend on your financial objectives and tolerance level. Moreover, under Section 80C and Section10D(D) of the IT Act, policyholders are entitled to tax benefits.
What Are ULIP Benefits?
Some of the significant benefits of the ULIP policy are underlined below.
- Life Cover
One significant advantage of ULIPs is the insurance coverage provided to policyholders. This is necessary to protect your family’s financial future in the event of your unexpected death. Furthermore, the policy enables the policyholder to select the amount of life insurance needed.
A ULIP provides complete transparency regarding past results, charges levied, rate of return, and plan value. Furthermore, the annual account statement and quarterly investment portfolio assist you in analyzing the performance of your investment.
These plans are highly liquid and allow for partial withdrawals. This enables policyholders to fulfil any short-term financial obligations.
- Tax Benefits
Premiums paid on ULIPs are deductible under Section 80C up to a limit of Rs 1.5 lakh per year. Furthermore, the amount you get upon maturity is tax-free under Section 10. (10D).
- Varying Fund Options
ULIPs allow policyholders to invest in various funds depending on their investment goals and risk tolerance. They can also transfer money among the debt and equity funds. Moreover, the plan allows the policyholder to supplement his investment portfolio with top-ups to enhance the ULIP returns.
If you understand the ULIP benefits, it is time to look for different options available in the market. You can also use a ULIP calculator to evaluate the predicted returns depending on the premium paid and tenure before purchasing the plan that best meets your needs.