Should you invest in ULIPs? Features and other details here
During the COVID-19 pandemic, when people WERE confined between 4 walls, there was a sudden surge of one thing: Market investments. Millions of first-time investors had started investing in stock markets across the world. In 2020, Indian markets witnessed a record 10.4 million new investors in the market. This number went up to 14 million new investors by 2021.
Wealth can be accumulated through market investments. However, there is a risk factor, wherein you could lose your money and savings as well. But what if you could increase your wealth and get financial protection in the form of a life cover, all in the same insurance policy? You can when you invest in a ULIP (Unit Linked Insurance Plan).
Read on to know more about this insurance plan and its features.
What is ULIP?
A Unit Linked Insurance Plan is a type of insurance plan that offers the policyholder two-way benefits: life insurance cover and investment. A part of the premium that you pay for the policy is used to invest in different funds. You have the option of investing in equity, debt or in both. The choice of investment is based on you. The returns that you gain get added to the sum assured offered under the policy.
What are the different features of this plan?
There are different features that you should know about a ULIP
- You can enjoy tax Benefits
Under Section 80C of the Indian Income Tax Act, tax deductions can be availed on a ULIP meaning, you can save money on the premiums you pay for the policy. Additionally, the maturity benefit under the policy is tax-free under Section 10(10D) of the Income Tax Act. This exemption is applicable for benefits of up to Rs. 2.5 lakhs. LTCG is applicable on the gains of the policy. However, it will not be applied in the event of an untimely demise of the policyholder.
- Investments can be switched
Depending on the choice of investment, you have the option of going with equity funds or debt funds. When you opt for an equity fund, the risk factor is much higher due to the volatile nature of the equity market. However, the returns you get are also higher. If you want to opt for an investment option with a lower risk factor, you can choose to invest in debt funds. The risk is lower than an equity fund and the returns are also medium. If you want the benefits of both the funds, you can invest in both equity and debt funds, where the returns would be low to medium.
- It helps in achieving life goals
Everyone has different life goals. A life goal could be owning a house in the future, saving for a child’s education or marriage, or wanting to take a vacation abroad. Such goals require substantial savings from a very early stage. The payout that you would receive once your policy matures is based on how much money you invested in it, when you started investing in it and what type of funds you invested in. This payout, i.e. the sum assured, can help you in fulfilling your life goal with ease. Do remember, the sooner you invest in the plan, better will be the pay- out.
- Protects your loved ones
Wealth accumulation is one benefit of this policy. The second benefit that you can enjoy is the life cover that is provided. If the policyholder passes away due to certain reasons, the family of the policyholder will get the sum assured for the financial stability they need. The life cover helps you in attaining peace of mind, knowing your loved ones will not have to struggle for money in your absence.
By keeping these features in mind, you can easily choose to invest in a ULIP for both financial gain and financial security. However, do keep in mind that the returns that you gain on fund investments are subject to market risk. Always take guidance from an expert or advisor before investing in this plan. To get a rough idea about how much you would need to invest based on your goals and what your returns could be, you can use the ULIP return calculator on the website of your preferred insurer.