The last few years have seen the rise of several new insurance products meant to entice new types of investors and insurance-seekers. Amongst these new-age insurance products, ULIPs have taken a major chunk of the spotlight because of the benefits they offer. With an approach that mingles investment with insurance, ULIPs have brought in policyholders that are looking for something beyond just traditional life insurance. However, there is a large number of people who are sceptical about purchasing a ULIP policy and wonder whether it is a worthwhile investment option. For those facing such a conundrum, we list down several ULIP benefits to help them make the right decision.
ULIPs are a beneficial mixture of insurance and investment
If you are at the stage in your life where you are building a portfolio that includes investing your money in the right places to create wealth and security, then a ULIP is the best option for you. Not only does it provide a life cover, but also uses your money to invest in instruments that can generate wealth in the long run.
The premiums that you pay for a ULIP policy are used in two ways – to build the life cover you have chosen and to invest in the financial instruments within the asset class of your choice. The life cover will provide financial assistance in the unfortunate event of your demise, and the investment will create returns during your lifetime, as per the performance of the market. Thus, it hit two targets – security and wealth creation – with one stone.
ULIPs allow switching between funds
Fund switching is one of the best ULIP benefits that a policyholder can ask for. The investment aspect of a ULIP is essentially divided into two asset classes – equity and debt. Depending on your risk appetite, you can choose between the two asset classes or even go for a balance of both. However, what sets ULIPs apart is that it gives an opportunity for the policyholder/investor to switch between the asset classes as per their understanding. So, if you feel that investing in debt would be safer, you can switch your invested amount into debt instruments completely. Or, if you feel that market performance is going to be good and you will get to earn considerable returns, you can switch the money from the debt funds into equity funds.
ULIPs help create financial discipline
Like many other investment products, a ULIP policy, too, has a lock-in period, specifically for 5 years. The policyholder has to retain their investment in a ULIP for at least 5 years before withdrawing them. This is essentially a good way to approach market-related investments, because, as experts say, the longer the money stays in the market, the more chances it has of gaining good returns. The lock-in period allows the invested money to get stabilised over the market’s lows and highs.
Partial withdrawals allow for liquidity
Once the lock-in period of 5 years is over, ULIPs offer a good liquidity option via partial withdrawals. One can even set up a systematic withdrawal plan to receive funds at a regular rate from the returns their ULIP investment has made.
ULIP tax benefits are substantial
Despite partly being an investment product, the tax benefits that a ULIP offers are quite substantial. As per Section 80C of the Income Tax Act, 1981, the premiums that you pay towards your ULIP policy are eligible for annual tax deductions up to Rs 1.5 lakhs. Moreover, the pay-outs that you receive from the ULIP policy, including the life cover, the maturity benefits, and the surrender value pay-out are also exempted from taxation as per Section 10 (10D) of the ITA. Additionally, even the partial withdrawals that you make from your ULIP are exempted from tax.
Note that ULIP tax benefits are subject to amendments in tax laws and are dependent on several terms and conditions.
Financial protection from a host of other uncertainties
ULIPs are also a good investment in the figurative sense because, as an insurance product, they offer you several riders which you can opt for to save money in the long run. For instance, if you opt for the critical illness rider with your ULIP policy, you get a lump sum pay-out in case you or the other insured members are diagnosed with any of the covered illnesses.
If these benefits have convinced you on why you should invest in ULIPs, then do remember to read the policy documents and consult a financial expert before going ahead with the same.