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What are the Benefits of Investing in a Unit Linked Insurance Plan?

Life goals vary from person to person, but they drive every individual towards accomplishing them. To be able to accomplish your life goal, the thing you need is wealth. Wealth gain or accumulation is something we all aspire to do. However, very few financial instruments provide safe investments and good returns. A ULIP plan, however, gives you the benefit of investment along with insurance in the same policy. Read more to know how this policy can benefit you in the long run and help you accomplish your life goals as well.

What is ULIP?

A ULIP is a type of life insurance policy, in which you get to invest and also receive life cover for your loved ones. The premium is used to invest for both. You can invest in equity funds or debt funds to grow your wealth. The investments should match your risk appetite and life goal.

What are the benefits of ULIP?

Listed below are the benefits you can enjoy with your ULIP investments:

You get tax deductions

ULIP has different tax exemptions. The premiums that you pay for your ULIP policy is exempted under Section 80C of the Income Tax Act. The maturity benefit that you receive at the end of your policy is also tax exempted under Section 10(10D) of the Income Tax Act. If you make partial withdrawals from your ULIP, those withdrawals are also tax exempt under conditions in Section 10(10D) of the Income Tax Act. These tax exemptions help you in saving a substantial amount.

One policy for two benefits

Unit linked insurance plan or ULIP is a type of life insurance policy. Under this policy, you get to enjoy dual benefits: investment and insurance. One portion of the premium that you pay for your ULIP plan is used in providing life insurance cover. This cover helps your family cope with different life risks in your absence. One portion of the premium is used for investment in the market-linked funds offered in the plan. You have the option of investing in an equity fund, debt fund, or both, to increase your wealth for a better future.

Top up your premium

A pre-determined portion of the premium that you pay for the ULIP is used for investments in funds. Your investment will increase based on where it is invested and how the market is performing, you have the option of increasing the investment amount. This can be done with the help of a top-up premium. A top-up premium basically allows you to add an extra amount to the premium you have already paid for the policy. This added amount can then be redirected towards the funds in which you have invested. For example, if your yearly premium is Rs.1,00,00 and you want to increase it by Rs.40,000 for one year in order to increase your investment amount; you can simply do a top-up premium of that respective amount. Once the amount has been added, you can then reallocate to the fund of your liking.

Switching of investment is allowed

The investments made in a ULIP are based on your risk appetite. If your risk appetite is high, you can opt for equity debts, as they are offer higher returns; however, they also carry a huge risk factor. Similarly, if you want to play it easy without risking anything, you can go for debt funds which carry a low risk factor and offer low to medium returns. However, the risk appetite does not always stay the same. Your life goals or needs may also change overtime.

In such a situation, you always have the option of switching your investment in a ULIP. This is one of the ULIP benefits in which you can reallocate your investments as per your risk appetite and needs. For example, if your maximum investments are in equity funds but, you are concerned about it getting exposed to risk, you can switch your investments to debt funds. Do keep in mind that you are only offered a certain number of free switches before charges are applied on it.

These are some of the benefits you can enjoy when you invest in ULIPs. You can use the ULIP plan calculator to get an idea about the investment and returns related to a ULIP.

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