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A Unit Linked Insurance Plan or Unit Linked Insurance Policy, commonly known as ULIP, offers dual benefits: insurance and investment. The premium paid towards a ULIP plan gets divided into two parts. One part provides life insurance coverage, and the other part is invested in money market instruments. Thus, ULIP insurance can help you achieve long-term savings along with financial protection.
Read on to know how investing in ULIPs can be beneficial to you and why you shouldn’t ignore this investment avenue.
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Top 5 Reasons to Invest In ULIP
ULIPS are an essential part of any investment portfolio. If you are wondering what makes ULIP such a lucrative option, here are the top 5 reasons that make an investment in ULIP worthwhile.
Flexibility
A ULIP plan offers tremendous flexibility in various aspects, namely, in terms of fund options, life coverage, premium amount and rider.
- You can choose your fund option, like equity, debt and balanced funds, based on your risk appetite and return expectations. Moreover, you can also switch between the funds.
- If you invest in ULIP, you can even get the flexibility to change your life cover. For instance, sum assured is selected at the beginning of the policy period, but you can opt for increasing cover, decreasing cover, or increasing your protection at different life stages.
- You can opt for a top-up option on a premium amount to increase your return on investments.
- You can opt for a rider and expand your coverage by paying an additional premium.
This level of flexibility makes ULIP insurance very attractive.
Transparency
ULIP investments are known to offer transparency when it comes to the fee or the charge structure, the value of the investment and the expected rate of returns. The basic details for a complete tenure are shared with you even before you buy the product.
This will help you understand the ULIP plan better to invest your money. Additionally, regular account statements, investment portfolio, and daily NAV reports ensure that you are aware of the current status of your investment portfolio.
Disciplined savings
Savings and investments are the core of reaching your financial goals. ULIP investments encourage long-term disciple savings and investment to fulfil your goals. Systematic Investment Plans (SIPs) are viewed as a frontrunner in long-term investments, and ULIP plans offer SIPs options to their investors.
Based on your goals, you can choose a fund type, that is, equity funds for long-term goals and debt funds for short-term goals.
Tax benefits
The premium paid for a ULIP is eligible for tax deductions under Section 80C of the Income Tax Act of 1961 up to ₹1.5 lakhs a financial year. Also, the amount received by the nominee upon the death of the policyholder is also exempted from tax under Section 10(10D).
The Budget for 2021-22 proposed several changes in the ULIP taxation structure. The maturity amount received is tax-exempt under Section 10(10D)* of the Income Tax Act, 1961 but is subject to certain conditions.
As per the new tax norms, ULIP plans issued on or after February 2021 will attract taxation on the maturity amount. However, this provision is applicable only if the annual premiums of a ULIP policy are more than ₹2.5 lakhs.
ULIP insurance with annual premiums exceeding ₹2.5 lakhs will be liable for capital gain tax. Thus, a new ULIP plan will now fall under a long-term capital gain tax of 10% if the ULIP gains exceed ₹1 lakh.
However, for existing ULIP policies or new ones with a premium amount of less than ₹2.5 lakh, there will be no capital gain tax on the maturity amount.
Higher potential returns
Compared to other life insurance plans, ULIP usually offers potentially better returns as the money is invested in different asset classes. The amount on maturity depends on the fund’s performance, but in most situations (especially for equity funds), the return on maturity is higher than endowment plans.
When you compare ULIPs with most other tax savings options, the lock-in period, too, is amongst the least, with a lock-in five years.
Frequently Asked Questions (FAQs)
Are ULIP plans a good investment?
A ULIP is a type of life insurance plan which also provides an added advantage of a long-term investment plan. Apart from the death benefit, a ULIP offers enhanced market-linked returns on maturity.
A ULIP plan is best suited for individuals with long-term wealth creation and insurance. Thus, if you have adequate backups for emergencies, then investing in ULIP is great.
How to invest in ULIP plans?
You can enjoy the benefits of ULIP by investing online in a hassle-free manner. You can visit the official website of an insurance company like Tata AIA Life Insurance and choose from various plans available under ULIPs.
Learn about the features and benefits of the policy, and use their online ULIP calculator to get estimated returns and premiums. Select the policy tenure, premium payment frequency, and other details. Make an online payment to buy the plan.
