Among life insurance products, ULIPs are the best investment tool to create wealth, especially the new age 4th Generation ULIPs which over the years have gone through several changes.
Understanding the significance of financial planning is becoming crucial for the younger generation particularly in India, which has more than 50% of the population below the age of 25 and more than 65% below the age of 35. There is concrete data to show that by 2050, the population of India above the age of 60 will increase by 326%.
Thus, with increasing longevity and life expectancy, the cost of living a dignified life at the end of our careers is also going up. You should, therefore, start planning for your future now by investing wisely. Even though you may have certain investment instruments in your financial planning kitty, putting all the eggs in one basket will leave you vulnerable to market volatility. Thus, investment in ULIP will prepare you against these market churn and hedge your risks.
What needs an individual can have?
Needs are the foundation of your financial planning. While establishing your financial plan, the first thing you need to do is to identify your short-term and long-term goals. Identifying goals and a proper plan to upkeep them can bring you assurance of a sound financial future. Short-term goals are your more immediate expenses such as covering daily expenses, purchasing household furniture, buying personal goods, payment towards rent or student loans.
However, long-term goals are usually your big picture costs. Achieving these goals may take years or even eras. Some examples of long-term goals are planning your retirement fund, starting a business or even paying off your mortgage.
Why is it important to invest when you are young?
The early you start investing, the more time you give to your invested money to grow. Insurance premiums are positively allied with increasing age. Also, investing early allows you to develop disciplined spending habits by focusing on your budget and cutting expenses when needed.
ULIP with the new version of plans and benefits is an effective investment tool to achieve your goals. Being the another investment avenue for young generation, it is one of the best investment options for millennials in the current volatile market. It gives investors both insurance and investment under a single integrated plan, thus the investment risk is on the individual.
Get higher returns out of your investment
Markets are volatile in the short term. Therefore, it is advisable to invest for a longer period for higher returns. The compounding nature of ULIPs enables you accumulate a higher corpus. For instance, if you start investing in ULIP plan at the age of 25 by paying just Rs 5,000 every month for approximately 25 years, you get around Rs 60-70 lakh at the rate of 10%. On the other hand, if you start investing at the age of 35 years, then your corpus at the age of 50 years will be around Rs 20 lakh at the rate of 10%. In short, the longer you invest your money in ULIP, the more amount you will accumulate.
Creation of your long-term wealth
ULIPs have been a solution to every investor’s problem. Among life insurance products, ULIPs are the best investment tool to create wealth, especially the new age 4th Generation ULIPs which over the years have gone through several changes. The main idea to invest at the early stage of your life is to accumulate higher wealth and to achieve long-term goals. It has been perceived that the longer you stay invested, the lesser are the chances to get affected by any financial ups & downs in the market. Basically, it helps you to fetch better returns which can also be used as a financial corpus for retirement purpose.
The strongest high point of ULIPs has to be their tax benefits. ULIPs offers remarkable good tax savings on withdrawals that are unavailable to mutual fund investors. The investment made in ULIPs are also tax free under section 80 C (up to Rs 1.5 lakh). Saving on income tax is definitely one of the advantages as one gets tax rebate on the premiums paid.
Charges are lower than ever
ULIPs did have higher charges initially when it was introduced. But, these charges have been reduced affectedly over the years with the launch of new age ULIPs. Usual charges in ULIPs were premium allocation charge, policy administration charges, fund management and mortality charge. However, this is changing with plans like Bajaj Allianz Goal Assure which assures return on mortality charge on the maturity. The investors will get the mortality charge back once the plan matures, simply offering a free insurance cover. Also with time, policy admin and premium allocation charge has become zero, FMS capped at 1.35%.
Here’s a look at some of the top-performing Ulips:
Updated as on: 2nd July 2019
(By Santosh Agarwal, Chief Business Officer-Life Insurance, Policybazaar.com)
(Disclaimer: These are the views of the author. Readers are advised to consult their financial advisor before investing in any plan.)