There are some investments that offer you the best of both worlds, i.e. both investment returns and coverage that financially safeguards your family. One of them is a unit linked insurance plan or ULIP. It’s not for nothing that they are some of the most popular investment options for a large chunk of the modern workforce today. What makes them so attractive to investors? Let us read more about how they offer growth and protection bundled into one effective investment proposition.
How Do ULIPs Work?
Unit linked insurance plans, or ULIPs, have a simple modus operandi in terms of how they work. Here are some key components of these plans that you should note carefully.
⮚ You will be investing in a life insurance product that offers a fixed coverage amount for a specific tenure.
⮚ In case you pass away within this tenure, the insurer will pay either the sum assured or the fund value, whichever is higher, to your nominees to help them stay afloat financially. In some plans, both the sum assured and fund value may be paid depending on the terms of the ULIP.
⮚ Coming to the fund value, ULIPs stand out by allowing you to choose equity, debt, and other funds to invest in. You can invest for a tenure that suits your goals, with a mandatory lock-in period of 5 years. Choose funds based on your risk appetite and try to balance and diversify as much as you can. The returns that you get from these investments may comfortably surpass inflation if you stay invested for the long haul and weather temporary fluctuations. You can choose to increase your premiums or investment period without any hassles.
⮚ Many insurers offer professional fund management for ULIPs, along with periodic fund-switching provisions. You can thus change underperforming funds or juggle them based on market movements or changing risk tolerance levels. This helps you safeguard your basic returns and maximise value over the long haul.
⮚ The money will compound and result in a handsome corpus that you can use for future goals like retirement, the higher education of children, buying a home, etc. On the other hand, if something happens to you in the interim, the sum assured payout can be used by your family to take care of all their financial needs.
⮚ You can flexibly choose the premium payment frequency (every month, quarter, or year), subject to the options provided by the insurer. Additionally, partial withdrawals are permitted after the 5-year lock-in period, subject to certain conditions and limits.
⮚ There are deductions on premiums under Section 80C, up to a maximum of ₹1.5 lakh per financial year, subject to certain conditions. The maturity benefits may also be tax-free under Section 10 (10D), provided the annual premium does not exceed 10% of the sum assured.
Summing Up
A unit-linked insurance plan is thus a tax-efficient and highly strategic investment that gives you the right combination of family protection and investment growth in a single product. This makes it an excellent choice to bulk up your portfolio and build savings to meet your future needs. Compare offerings across multiple insurers and choose the plan that best meets your needs today.
