7 Reasons Why You Should Invest in ULIPs

Unit Linked Insurance Plan (ULIP) in Brief

A Unit Linked Insurance Plan, or ULIP, is a hybrid financial product that combines both investment and insurance in a single policy. 

A portion of the ULIP policy premium is allocated towards providing life insurance coverage.

The remaining amount is invested in a variety of asset classes such as: 

• Equity Funds

• Debt Funds

• Balanced Mutual Funds

7 Reasons Why You Should Invest in ULIP Now

Let us now discuss the key 7 reasons for your query of why should I invest in ULIP:

1. Dual Benefits of Investment and Insurance

   • A ULIP investment offers both the life cover benefits of an insurance policy and high ULIP returns from market-linked investments.

   • A pre-decided amount is allocated from the total premium towards life insurance coverage.

   • The rest of the premium amount is deposited towards the ULIP investment instruments, like debt and equity funds.

   • This helps you to get a comprehensive financial solution for your needs.

2. Tax Benefits of Triple E-E-E

   • With the investment in a ULIP plan, the policyholder can enjoy the triple EEE (Exempt-Exempt-Exempt) tax benefits.

   • This indicates that you can claim a tax rebate during these three phases of a ULIP investment:

     • Investment Stage

     • Returns Stage

     • Withdrawal Stage

   • You can claim tax deductions from your taxable income on the premiums paid annually.

   • After the end of the lock-in period, the policyholder can withdraw their fund along with the accumulated returns.

   • ULIP returns or sum assured are exempted from taxation.

   • Interest earned on maturity is also tax-free.

3. ULIP Top-Up Advantages

   • ULIP investment enables the policyholder to increase the investment amount over and above their fixed premium amount.

   • The top-up facility allows you to invest extra money in your existing ULIP policy.

   • If the existing fund is performing well, you can easily invest the surplus money in the existing ULIP funds.

   • This allows you to benefit from the growth of your ULIP investment fund.

   

4. Fund Switching Flexibility

   • The fund-switching option enables the policyholder to adjust the ratio of exposure in equity, hybrid, or debt funds as per these factors:

     • Risk profile of the investor

     • Performance of various ULIP plan funds

   • This ULIP benefit allows you to move your investment amount totally/ partially from one fund to the other without paying any charges.

   • You can easily exercise this unique feature from the comforts of your home if you actively follow the capital market trends.

   • The ULIP Plans offer a few free switches each year to their investors.

5. Various Investment Options

   • ULIPs offer multiple investment options to cater to the varying needs and risk appetites of investors.

   • The several ULIP investment options available are:

     • Equity funds

     • Debt funds

     • Balanced funds

     • Money market funds

     • Hybrid funds

   • Investors can choose the ULIP scheme that best aligns with their investment goals and risk profile.

   • Investors can also switch between different investment options offered by the ULIP plan to rebalance their investment portfolio as per market conditions or their changing investment goals.

6. Fund Liquidity During Lock-in Period

   • ULIPs usually come with a lock-in period of 5 years. It is the minimum duration during which the policyholder cannot withdraw or surrender the policy.

   • However, you can also partially withdraw from your ULIP investment after completing the lock-in period.

   • During the ULIP lock-in period, you can switch between different investment options offered by the ULIP plan without attracting any charges.

   • The lock-in period of five years is also necessary to avail of the tax benefits of a ULIP investment.

7. Potentially Higher Returns

   • ULIP returns are much better as compared to other insurance policies and savings schemes.

   • You can switch your fund portfolio as per the market performance assessment.

   • ULIPs invest the money in diversified asset classes and are managed by experienced fund managers.

   • A ULIP plan also levies lower overall charges of premium allocation, policy administration, and fund management charges.

Important Points to Consider for a ULIP Investment

If you're considering investing in ULIPs (Unit Linked Insurance Plans), here are some essential points to consider:

• Before making a ULIP investment, it is crucial to identify your investment goals and risk profile.

• Understand the charges associated with the plan and evaluate their impact on your ULIP returns.

• It is essential to understand the implications of the 5-year lock-in period on your ULIP investment horizon and liquidity needs.

• Understand the ULIP plan's flexibility and evaluate its importance to your investment objectives.

• Evaluate the insurance cover offered by the ULIP plan and its relevance to your insurance needs.

• Before investing in a ULIP, it's crucial to evaluate the ULIP plan's performance track record and compare it with other similar investment options.

• It is also important to consider your ULIP investment plan's asset allocation strategy and investment philosophy.

Wrapping It Up

Investing in ULIPs (Unit Linked Insurance Plans) can offer several benefits such as long-term investment horizon, protection against market volatility, and tax benefits. However, before investing, it is crucial to evaluate various factors such as investment goals, charges, and fund performance history to make an informed decision. 

By doing so, ULIPs can be a suitable investment option for those seeking a combination of investment and insurance benefits.

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