Life insurance and investing advantages are combined in a unit-linked insurance plan (ULIP), a type of financial instrument. The investment helps you reach your financial objectives while the life cover ensures the financial security of your loved ones in the event of an unforeseen circumstance.
Depending on your risk tolerance, ULIPs provide you with the option to invest in high-risk equities funds that offer higher returns, low-risk debt funds, or a combination of the two. You can swap between funds and earn returns matching your objectives and needs. You have total control over your investments with ULIPs. Because of this, ULIPs are a great investment choice for a variety of objectives, including retirement, home ownership, and funding a child’s higher education hence it is essential to know the meaning of ULIP.
The ULIP calculator is a simple, easy-to-use and convenient tool that you can use to predict the return you might get at maturity by entering a few details.
Reasons to buy ULIPs
These are the top six reasons to invest in ULIPs:
● Double gain
ULIPs are special financial instruments that combine life insurance and investment into one plan to give you two significant benefits. If something bad happens during the policy term, your loved ones are financially protected by the life cover from a ULIP. Your investment returns are paid to you at the conclusion of the policy term, which may enable you to realise your financial goals.
● Premium redirection
You have the choice to put your future premium payments in a different fund thanks to premium redirection. The fund you previously selected will continue to receive all of your prior premium payments. All of your next premium payments will be put into the new fund in accordance with your choice. This enables you to alter your future investments without having an impact on your prior investments’ gains.
● Tax advantages
Under Section 80C of the Income Tax Act of 1961, you may deduct up to 1.5 lakh per year for the premiums you pay for a ULIP. In addition, subject to the restrictions in Section 10(10D), the amount paid to you under the policy is likewise tax-free.
● Option to top-up
Your evolving life stage may cause your goals and requirements to change. To assist you in achieving these goals, you might choose to raise your investment in your plan. ULIPs give you the top-up option, enabling you to add extra funds to your current plan during the policy’s term.
● Switching funds
ULIPs give you the freedom to swap between funds based on your needs and the state of the market. This aids in aligning your investments with your goals and level of risk tolerance. You can move to equity funds if you’re willing to take on additional risk. You can switch to debt funds, though, if you wish to reduce the risk. All of these can be done at any time throughout the year, giving you a chance to take advantage of shifting market conditions to increase your earnings.
● Lock-in period withdrawal facility
The lock-in period for ULIPs might run for three to five years. Unlike many other investments, ULIPs allow for partial withdrawals even during the lock-in period, which is a key characteristic of ULIPs. With this choice, you may be certain that you’ll always be prepared financially.
● They are one of the most popular tools for achieving long-term objectives
A ULIP is a long-term investing choice, as you can see above. If you give it enough time, it works well. When it comes to building market-linked wealth, which a ULIP exploits, factors like compounding—basically reinvesting your gains to produce larger returns—play a significant role.
When should I make ULIP investments?
The earliest feasible time is optimum to begin investing in ULIPs. Depending on the funds you invest in, ULIPs can provide excellent growth potential. Your money has plenty of time to earn returns and increase in value because ULIPs typically have a lock-in period of up to 5 years. Investing for longer than five years can increase the likelihood of growth even more.
It’s crucial to keep in mind the meaning of ULIP and that because a ULIP is a type of life insurance, purchasing one when you’re young might guarantee you lower premiums. Also, starting early will extend your investing horizon and give your funds adequate time to develop. Hence, avoid waiting and begin investing in ULIPs as soon as you can. ##
You can use a ULIP calculator to estimate future returns and the value of a ULIP investment.