Nowadays, having a diverse portfolio of investment options and financial security products has become a must for everyone. Inflation is rising, economic uncertainties are direct consequences of a global pandemic, and the world order is far from stabilizing. All these events affect your finances in subtle ways, and it becomes important to combat these economic adversaries with an arsenal of good investments.
One of these is undoubtedly a ULIP policy. It is a hybrid instrument that can prove useful to your cause in more ways than one, and it can make a big difference to your life, especially in the long run. Let us take a deep dive into ULIP policies and gloss over their five major advantages, which make them a must-have in your portfolio.
ULIP Insurance: The Right Choice for You
ULIP stands for Unit Linked Insurance Plan, and it combines investments in debt or equity instruments along with a traditional term plan to provide dual benefits to the policyholder.
How do ULIPs Work?
Similar to any insurance product, you are required to pay a yearly premium. This premium is divided into two portions; one is utilized to give you life insurance, and the other goes into mutual funds. There is usually a diverse pool of funds comprising equity, debt, and a balance of the two. You are free to make a choice for any one of these funds, depending on your risk tolerance and expectations of ROI.
There is a lock-in period of 5 years during which you cannot access the corpus being accumulated, but following the end of this span, you are allowed to make partial withdrawals from the corpus, although that is generally not advised lest you decrease the overall wealth in the long run.
Advantages of ULIP
- Affordable: Traditionally, ULIPs fell on the higher end of the price spectrum, but modern ULIPs have come down to become very affordable. That makes them a lucrative option for young professionals who have a lot of time on their hands as well for maximum long-term gains.
- Flexible: The fund options that ULIP policies provide are diverse and offer varying degrees of risk and returns. Not only are you allowed to choose the fund initially, but you can also switch the fund if the performance is not on par with your expectations. You get a certain number of free switches a year, and a lot of companies also allow you to make unlimited switches for no charge at all!
- Tax Benefits: ULIP policies come with the tax benefits that are associated with all life insurance products. These are exemptions on premiums under section 80C and a tax-free death benefit under section 10D.
- Wealth Creation: In addition to the life cover that can be a cushion for your family at a time when you are no longer around to provide for them, the aspect of wealth creation sets ULIP policies apart from the rest.
- Multipurpose: A ULIP policy can be utilized in multiple ways. Firstly, it must be noted that ULIPs are best utilized to fulfill long-term goals. With this in mind, the two most popular use case scenarios for ULIP policies are retirement plans and child plans. Some plans offer a systematic withdrawal that can be utlized as either a replacement or a supplement to your pension plan post-retirement, depending on the corpus size. Also, you can utilize the corpus to fund your child’s education or any other needs. Additionally, if you choose just to use it as a tool for wealth creation, the uses are practically endless.
Why Invest in a ULIP Rather than a Pure Insurance Policy?
There are many reasons to invest in a ULIP policy. The first and most important is the attractive returns that one can get, whereas there are no returns in a pure insurance policy. Also, new age ULIP policies are affordable and strong long-term performers, so if someone is looking to invest in life insurance and is young, they might as well go for a ULIP and reap dual benefits in the long run.
ULIP policies offer many advantages that make them a must-have in every portfolio. They are modern life insurance products that are flexible and multipurpose, keeping up with our times.
You can start your ULIP journey by estimating the premiums and returns using an online ULIP calculator and comparing different plans. Once you find your perfect plan, you are set for life!