A unit linked insurance plan is one of the best financial instruments you can invest in; it offers the dual benefit of a life cover coupled with market investment helping in grow your wealth as well as providing your family with a financial safety net. A ULIP plan works by investing a percentage of your investment amount by diverting the funds to provide you cover, and by diverting the rest towards market linked returns such as equity, debt and hybrid investments. If you are a smart financial planner and care about retiring wealthy, then a unit linked insurance plan can prove to be a great investment.
What are the benefits of a unit linked insurance plan?
Here are some benefits of a ULIP plan that you should know to make an informed decision:
Offers You Dual Benefit
As mentioned earlier, a ULIP plan is unique in itself as you get both insurance cover as well as a systematic investment plan combined into one single plan, which helps you secure a better future for yourself and your family.
Tax Exemptions
Since a ULIP plan is essentially a EEE product, you can benefit from tax exemptions. Under the IT Act. This tax exemption is available to you right from the investment stage to the earning stage; moreover, your withdrawals are also exempt from taxes. Every premium paid as part of the plan, is eligible for exemptions.
Invest as Per Own Risk Appetite
You have the option of choosing the funds that you would like to invest in depending on your risk appetite. You can choose to invest in equity, debt or balanced funds and even choose to switch funds as per your requirement, making ULIP a very flexible investment option.
Benefit from Long-Term Gains
If you stay invested for a long time, you can benefit from ULIPs because any losses due to market fluctuations can be balanced out by diverting funds towards better performing funds. Therefore, its best to stay invested for at least 15-20 years to gain most out of your investments.
Uniform Payment Structure
All unit linked payment plans whether it’s a regular premium or a limited-term premium have a uniform payment structure. Every additional premium paid by you are used to offer you life cover.
Even distribution of Charges
Any charges that are levied on a unit linked investment plan are distributed in an even manner throughout the lock-in period of 5 years. However, always ensure that you read through the details of your plan for a clear understanding of all the payable charges that you would have to incur before investing.
Where do your funds get invested?
Once you’ve understood ULIP meaning, as a policy buyer, you would want to know how it works by investing your funds in market linked products to ensure maximum returns on investment.
Equity Funds
A percentage of your investment goes into equity funds to stocks with NAV or Net Asset Value attached. A NAV is the price of each share in a fund. Equity funds are higher risk high reward investment funds.
Debt Funds
Debt funds are lower risk funds like government bonds and debentures, etc. a percentage of your premium is invested in these funds.
Hybrid Funds
It’s a mix of equity and debt funds offering the dual benefit for fast growth and less risk to balance out your losses and earnings and can result in good returns throughout the lifecycle of the plan.
What are the things you should keep in mind before investing in a unit linked insurance plan?
Whenever you are about to invest in a unit linked insurance plan, you should be aware of a few things:
- Applicable charges including surrender charges (those payable on premature surrender of ULIP plan)
- Investment fund options available
- Features and benefits
- Limitations and exclusions
- Consequences of ULIP plan lapsing
- Other disclosures
A ULIP plan is one of the best investment plans that offer great returns if you stay invested for a long time. If you are looking for a policy that offers your family protection as well as great returns over a period of time, then you should definitely consider investing in a unit linked insurance plan.
If you want to make a smart investment, ULIPs can be a wise financial move in the long term. If you are serious about building a corpus before retirement, it’s better you start as early as possible. So, start your journey towards financial independence today!
