When we think about wealth accumulation, investment for long-term comes to our mind, and when we think about financial security, insurance immediately pops up. There is a fine line between financial gain and financial security which persist till date in our mind. The reason behind this difference is the scarce availability of investment vehicles which serve the dual purpose of insurance and investment. However, ULIP is one such financial instrument that serves both the purposes.
What is ULIP?
ULIP or Unit Linked Investment Plan is an investment vehicle that includes the best of both the worlds- investment and insurance. In this plan, a part of the premium is dedicated to providing live coverage, and the other part is invested in capital markets for long-term wealth creation. So, an investor gets the benefit of wealth accumulation and financial security at the same time, with just one single product.
However, choosing the best ULIP plan which suits your financial aspirations and budget is a task which requires time and patience. This is mainly because there are a plethora of ULIP funds available for you to choose.
Different Types of ULIP Funds
These ULIPs invest your premium in the money market investments such as bank deposits, cash, etc. which have a low-risk profile. The returns in this ULIP type are stable.
The ULIPs whose underlying assets are equity funds are known as equity ULIPs. These ULIPs have a high-risk profile and have the capacity to generate higher returns. However, considering their higher risk profile, it is recommended to invest for a longer duration to stomach the market fluctuations.
These ULIPs are invested in fixed income funds like bonds, government securities, and corporate bonds which fall in the medium risk category. The returns, in this case, are higher than liquid ULIPs but lower than equity ULIPs.
These ULIPs invest in both equity and debt funds. Their overall risk profile is medium as the high risk of equity funds is mitigated by the low-risk profile of fixed income instruments.
What Are the Different Goals for Which ULIPs Can Be Used?
Since people invest their money for different purposes, there are different ULIPs for major financial goals like higher education of your child, retirement, and wealth accumulation.
Funding the Higher Education of Your Child
ULIPs help to secure your children’s future even after you are no longer present to support them. Moreover, ULIP-based child plans are ideal for parents as they help in supporting their child’s education, especially higher education by providing much-needed financial support. If the breadwinner of the home passes away, with the help of a child savings plan, education of the child can be completed with zero financial hiccups, courtesy, the presence of monetary support at every stage.
Investment in ULIPs with the sole purpose of retirement planning can help you get regular income after retirement and spend your golden years without being financially dependent on others. A person planning retirement with ULIPs can start by investing in equity-based ULIPs for greater wealth creation and gradually shift to debt funds while nearing the retirement age.
ULIPs are extremely beneficial for young-adults or millennials who have just joined the workforce and want to build a corpus for their future financial goals. Equity-based ULIPS are the best option for wealth creation as the averages of highs and lows of the market over a long period of time helps in greater wealth creation.
How Can Investors Benefit by Investing in ULIPs?
ULIPS have become popular amongst the investors of all age group because of the following reasons:
Since there are different types of ULIPs funds, investors can choose the fund where they want their premium to be invested. They can arrive at this decision based on their financial appetite and risk-taking abilities.
Long-Term Financial Planning
invest your money in a ULIP plan, you can generate wealth in the long term and fulfill your financial aspirations. The best part is, you get the benefits of live coverage and wealth accumulation in a single product. Therefore, unlike term insurance, your premiums are not wasted if the plan matures and you outlive the policy term.
Under Section 80C of the Income Tax Act, the premiums that you pay for your ULIP plan are up for tax deduction from your taxable income (maximum up to Rs 1.5 lakhs). Also, the maturity benefits are completely exempted from tax under section 10D.
ULIPs also provides investors with an option to switch funds based on their changing risk-appetite, goals or market conditions. Insurers like Max Life Insurance give you the flexibility to switch your money as many times you want through the policy term.
The Bottom Line:
ULIPs are one of the greatest investment instruments for investors, especially for those who want to secure their family and also create wealth to fulfill the future financial goals of their loved ones. If you too are looking forward to buying one, do your research and compare the best UILP plans before making your final decision.