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A unit-linked insurance plan, or ULIP, provides both investment and insurance benefits. In other words, the premium for a ULIP is split into two portions: one portion is used to purchase life insurance, and the other portion is used to purchase investments in money market instruments. You can obtain insurance and invest your way to a sizable fortune with the aid of a ULIP plan.
Still, trying to figure out the benefits of ULIP investing? All of your queries will be addressed in this article. But first, let’s discover the solution to the question, “How does ULIP work?” before we delve further into the same.
How Do ULIPs Operate?
An investment in a ULIP is split into two parts. The first portion is used to pay the premium for the life insurance policy. For financial gain, the second portion of the investment is placed in debt or equity funds.
You can alter the proportion of your ULIP investments in favour of your insurance coverage or into your investment portfolio based on your long-term financial objectives. In either case, you will undoubtedly benefit financially greatly.
An illustration will help you comprehend how ULIP plans operate. Here is one, then: You started a ULIP plan and are paying a premium of Rs. 50,000. Once the premium amount has been paid, your insurance company will deduct a premium allocation fee. The sum paid for early expenses like commission and other selling costs makes up the premium allocation charges.
The ULIP calculator is a simple tool that you can use to predict the return you might get at maturity by entering a few details.
7 Reasons to Invest in a ULIP Right Now
- Providing Two Advantages in One Bundle
The only financial instrument in India that provides life insurance coverage and investing opportunities in one package is the ULIP. You do not need to purchase separate insurance and investment plans to guarantee your future. This considerably reduces the cost of the corresponding premiums and aids in better money management.
Exemptions from Taxes
- Tax exemptions
Section 80 C of the Income Tax Act permits tax deductions for investments made in ULIPs. An investor’s ULIP investments are eligible for ULIP tax benefits of up to 1,50,000 per year. Similarly, Section 10D of the Income Tax Act exempts the returns you get when your ULIP policy matures from taxation. Moreover, Section 10 (10D) of the Income Tax Act exempts the sum received by the nominee following the passing away of the policyholder. **
- Adaptable Investment Alternatives
- Fund switch: ULIPs provide a variety of investing possibilities. This adaptability manifests as Depending on your risk tolerance, you can switch between various funds, such as balanced, debt, or equity funds. You can raise the percentage of investments in equity funds if you want to take a high-risk approach to your investments. You can change your investments into debt or balanced funds to lower your risks.
- Top-Up Choices: Top-up choices let you increase the amount you put into your current savings.
- Premium redirection: Redirecting your premiums into alternative funds in the future is possible with premium redirection.
- Sum Assured
When you purchase a ULIP, the insurance coverage ensures that, in the event of the policyholder’s untimely passing away within the insurance period, a predetermined sum of money will be paid to the nominee. This set sum, known as the “sum assured,” is not taxable, offering ULIP tax benefits.
- The Lock-In Period Withdrawal Facility
Typically, during the lock-in period, when you make any investments, you are not permitted to make any partial withdrawals. You will be able to withdraw money throughout the lock-in period, thanks to ULIP perks, though. Nevertheless, when you withdraw during the lock-in period, certain fees and deductions are deducted from the amount.
- Potential for higher returns:
Compared to other investment options, ULIP returns have a higher potential for financial gain. These excellent results are possible due to the flexibility of equity and loan funds. Similarly, by “staying invested” in ULIPs, you become eligible for specific benefits and bonuses. Insurance companies provide bonuses in the form of loyalty or wealth enhancements.
- Advantages of Long-Term Growth
Long-term advantages can be obtained by paying ULIP premiums over a lengthy period of time. If you do this, your money will be invested in the market for a long time, generating larger returns. If you plan ahead, you can utilise this money from the ULIP’s long-term benefits for things like paying for your kids’ college or a down payment on a property.