Unit linked insurance policies (ULIPs) are life insurance policies that double as investment tools. Each month, part of your premium payment is put aside as an investment fund. This sum is then invested in equity or debt, depending on your personal preference, generating returns on your investment and allowing your life insurance policy to double as a savings tool.
Here we break down seven reasons why ULIPs should be part of your wealth investment plan. Whether you are saving for retirement, building a rainy-day fund, or putting money aside for your child’s university education, a ULIP can help you achieve your financial goals and should be worth your consideration.
- ULIPS have a Dual Function
ULIPs offer the opportunity to save and secure life insurance within the same monthly premium. Other savings tools offer returns on investment but do not offer life insurance policies that can provide financial security for your loved ones in the event of your death.
- You have the flexibility to choose the life cover you need
Within ULIP, you have the capacity to select the precise life insurance you need. Most ULIPs set the minimum coverage to 10 times your annual premium. However, if you need additional coverage, you can purchase coverage for up to 40 times your annual premium or higher.
- The premium is tax-deductible
Under u/s 80C of the Income Tax Act, your premiums are deductible from your annual taxable income. There are limits (the current limit is Rs. 1.5 lacs), and your premium cannot be higher than 10% of the sum guaranteed under your life insurance policy, but this can significantly increase the rate of return.
- Offers investment options for everybody
Whatever your financial goals, ULIPs offer an investment option that can meet your needs. For those approaching retirement who require lower-risk investment options, you can invest in debt funds. Younger investors may prefer something with more risk, like balanced funds or equity funds.
- There is a liquidity option for emergencies
ULIPs offer a liquidity option for those that need to access their assets in the event of a financial emergency. Partial withdrawal+ clauses allow the policyholder to withdraw some of the some of the money invested in the policy free from penalty charges or fees.
- Tax-free withdrawals
If the policyholder dies or the policy matures, the benefit is paid out tax-free. This offers significant tax advantages over mutual funds, on which returns are taxed as annual income.
- You can top up your premiums
If your ULIP is performing particularly well, you can make supplementary payments to top up the premium. These voluntary extra payments offer more flexibility than taking out another ULIP plan because if your financial circumstances change, you can stop making the payments without incurring a penalty.
These seven advantages of ULIPs make ULIPs a valuable investment tool for anyone looking to enjoy the benefits of market-linked investments with all of the safety and security of a life insurance policy. They offer all of the rewards, with an extra safety net.