Understand How An ULIP Works!
Table of Contents
A Unit Linked Insurance Plan (ULIP) is a unique investment instrument with the added protection of life insurance. Through systematic investments and market-linked returns, ULIPs allow you to create wealth for your long-term goals like your dream house, your child's education, your retirement and more. At the same time, it also ensures that your goals are achieved even in case of an unforeseen event, through a life cover.
ULIP plans enable you to place your money in various equity or debt funds, as per your risk appetite. While the premiums you pay are deductible from your taxable income under Section 80C#, the returns are also tax-free subject to Section 10(10D)# of the Income Tax Act, 1961. Thus, ULIPs are a triple bonanza of monetary security for your family, capital appreciation, and tax savings.
How ULIPs Work
Here’s a clear understanding of how ULIPs work to help you get more value and the above-mentioned benefits.
- To venture into the capital market with ULIPs, you have to decide the level of life cover, premium amount, premium payment option and policy term to match your financial protection and savings needs
- You can select the premium payment frequency as monthly, half-yearly, or yearly basis your convenience and opt between an upfront, lump-sum payment, and recurring payments on an annual, half-yearly, or monthly basis
- One part of your premium goes towards providing you a life cover
- The other larger part of your premium is invested in the stock market via equity, debt, or hybrid funds based on your preferences
- Equities place your money into stocks. Debt funds channel your capital into bonds, government securities, and other low-risk investment tools. Hybrid funds balance the risky yet high return-potential of equities with the stability of debt funds
- The money invested in these funds defines the value of your policy. The longer you stay invested, the better your chances of getting higher returns
- In case of an unfortunate incident during the policy tenure, your nominee will receive the sum assured to fulfill their dreams
Conclusion
With a clear idea of how ULIPs work, you can now make a more informed decision towards this investment avenue. It is beneficial to stay invested for a longer duration. The effect of market volatilities are compensated in the long term. With time, higher percentages of your premiums go into the investment funds, empowering you to achieve all your future goals.
Also read - How Can ULIPs Assist You in Increasing Your Earnings?
