Benefits of a ULIP Plan You Should Know

Insurance has become a necessity in today's world. However, most people do not purchase insurance because they believe it only offers life insurance and has no investment benefit. However, insurance plans such as  Unit Linked Insurance Plans (ULIP), attempt to offer the policyholder with both life insurance and wealth growth.

Unit Linked Insurance Plan (ULIP)

A Unit Linked Insurance Plan (ULIP) is a type of insurance that also serves as an investment vehicle. It is a type of plan that gives you the security of life insurance while also giving you the freedom to manage your money. It achieves the objectives of wealth building and life insurance. A ULIP is usually created by an investor who wants to protect his or her beneficiaries. The insurance company deducts a portion of your investment for life insurance and invests it in a fund based on equity or debt, depending on your preference, that is tailored to your long-term goals, such as retirement planning, children's schooling, or any other significant event.

In a similar way to mutual funds, the assets in a ULIP plan are managed to achieve a specific goal. The plan determines a net asset value, which is then market-linked and appreciates as the value rises. When an investor buys units in a ULIP, he or she is buying them alongside a group of other investors. Investors have the option of purchasing shares in a single strategy or diversifying their portfolio across various market linked Unit linked Insurance Plans.

How Does Unit Linked Insurance Plans Work?

Unit Linked Insurance Plans (ULIP), are insurance plans that combine the advantages of mutual funds and life insurance into a single plan or product. These plans include both market-linked rewards and life insurance. The premiums you pay for your plan are adjusted to account for the expenditures indicated before. The net premium is subsequently placed in a fund of your choice (equity, debt, balanced, and so on). By way of Net Asset Values ( NAV), the Fund Value displays your rising corpus.

At the end of the term, the Fund Value is paid out. The larger of the Sum Assured promised or Base premium fund value plus Top up sum assured or Top up premium fund value, if any, is paid in the event of death, depending on the option selected. Because a major portion of the premium is spent for plan expenses during the first few years of a plan, the fund's value will initially be low. After that, the premium is split into two sections: investment and insurance. Units are awarded in exchange for money invested in a fund of your choosing, which can be debt, equity, or a combination of both. The unit allocation is based on the performance of the original fund.

Benefits of ULIP 

Because of their ULIP benefits, ULIPs have become one of the most popular insurance products today. The following are some of the most essential advantages of a ULIP plan:

1. A Dual Advantage in a Single Offering

ULIPs offer the best of both worlds: insurance and investing in one package. It satisfies two demands at once, allowing you to be more comfortable. On the one hand, you will get a low-cost insurance policy, and on the other, you will be able to invest in funds of your choice. A ULIP provides assured security for your family, as well as the added benefit of market-linked investments.

2. Wider Investment Choices

Another advantage of ULIP plans is that you can tailor your investments to your risk tolerance and financial objectives. Bonds are a good option if you want to adopt a low-risk approach to investing for retirement. Balanced funds are a good option if you have a moderate risk tolerance. If you are a high-risk investor, you may prefer to invest in equities funds. However, depending on your needs, you can choose an acceptable ratio of each sort of investment.

3. Flexibility

One of the most significant advantages of ULIPs is the ability to swap your portfolio between debt and equity based on your risk tolerance and market knowledge.

4. Support Long Term Goals

The features of the ULIP plan are designed to give you compound growth. As a result, if you have demanding long-term goals, like buying a house or a new car, it is a terrific option. Your money is compounded in a ULIP, resulting in higher net returns. A ULIP's returns are also higher than those offered by Fixed Deposits or equivalent products. The goal is to keep the money safe in a ULIP for a longer period of time, allowing it to grow exponentially.

5. Tax Benefits

Another advantage of ULIP plans is that the premiums paid are eligible for tax exemption under Section 80C up to a ceiling of 1.5 lakhs. Furthermore, under Section 10(10D) of the Income Tax Act of 1961, the returns on maturity are tax-free. This means that you can benefit from tax exemptions as well as insurance coverage and the growth of your money. ULIP benefits, like those of other alternative investment alternatives, are not affected by long-term capital gains taxes. ULIPs are a tax-efficient investment because of these ULIP plan benefits.

6. Option to Enhance Coverage

Add-on riders are available on most ULIPs, allowing you to expand your insurance coverage. Along with your ordinary life insurance plan, these riders provide you with increased protection against unforeseen events such as an accident, permanent disability, and so on.

7. Top-Up Facility

Many insurance companies now offer top-up premiums, which allow you to invest in addition to your current monthly payment. This ULIP benefit is best utilized when your ULIP plan is functioning well and you have the ability to invest more in order to increase your profits. Furthermore, a top-up facility is more convenient, quicker, and cost-effective than purchasing a new plan outright.

Take Away

These ULIP advantages make ULIPs an excellent investment option for you. You can use the benefits of a ULIP plan to protect and financially secure your future and that of your family.

Also Read: Is it Worthwhile To Invest In Life Insurance Riders?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.