Unit-Linked Insurance Policy (ULIP) is a life insurance plan that offers investment benefits as well. A portion of your premium is put in investment instruments. Depending on your financial goals and risk appetite, you can choose equity, debt, or a balanced fund for the investment. As ULIPs support significant wealth build–up, you can use the money to fund a comfortable retired life, education of your children, or for an emergency.
1. Dual functionality
A life insurance policy provides the sum assured in case of an unfortunate event. Conversely, investment instruments offer the option to grow your money, but they do not guarantee the financial security of your loved ones. ULIPs stand apart from other investment plans because they bring both benefits. With ULIPs, you can enjoy the best of both worlds.
Option to choose the sum assured
Purchasing a life insurance cover is not enough to ensure the financial stability of your loved ones. You need to ensure that the sum assured is adequate to meet their requirements. The life insurance coverage value depends on many factors like your family’s financial goals, your liabilities, and household expenses. Hence, selecting the correct sum assured is essential while buying a life policy. ULIP funds offer you the convenience to decide the sum assured. Most policies provide a minimum sum assured of 10 times your yearly premium. However, you can opt for a plan, which offers a life insurance coverage value of over 40 times the annual premium.
3. Tax-deductible premium
What makes ULIPs even more lucrative is that they provide a tax benefit. Section 80C of the Income Tax Act, 1961 allows you to get an annual tax deduction of up to INR 1.5 lakh on the premium paid. One limitation is that the premium cannot be more than 10% of the ULIP’s life cover. However, the money you save makes ULIPs even more profitable.
4. Tax–free life cover
Apart from the premium, ULIP’s sum assured is also exempt from tax. The maturity benefits are entirely tax-free as per Section 10(10D) of the Income Tax Act, 1961. This puts ULIPs ahead of most other investment options that do not offer tax-free returns.
5. Flexible investment options
There are different types of ULIPs, which offer you the feasibility to choose an investment fund depending on your risk-taking ability and financial targets. If you want to earn high returns and are not afraid to take some risk, invest in an equity–based ULIP. However, if you are looking for a low-risk option, opt for a debt-based or balanced ULIP fund.
ULIP funds offer a liquidity option, allowing you partial withdrawal from the accumulated sum. This is a convenient alternative, which comes to your aid in times of financial emergencies. However, you can opt for the withdrawal only after the initial five-year lock-in period. Some insurers even have liquidity restrictions in place, allowing you only a limited number and amount of withdrawal.
7. Premium top-up
Another great flexibility of ULIPs is the premium top-up option. It allows you to make additional payments to increase the premium and get higher returns from the policy. You can stop paying the top-up anytime you want.
Now that you know ULIP plans and its benefits, it is time to find the best policy. You can do this easily by comparing different ULIPs online to determine which policy is suitable as per your investment goals.