Years ago, there were limited options for investments in India. Your parents and grandparents would have known only some very specific investment tools like Fixed Deposits, National Pension System (NPS), Public Provident Fund (PPF), and so on since they are not inclined to risks. Since the Government of India backs many of these investment vehicles, they are trusted for providing guaranteed income and fixed returns.
Today, investors might be willing to take more risks for gaining higher returns. Moreover, due to the need for investments, you can pick from the different options based on your risk appetite and financial goals. The introduction of the Unit Linked Insurance Plan (ULIP) in the Indian markets makes it easier to receive better returns as well as fulfill your life goals as compared to other investment options.
Before purchasing a ULIP plan, let’s begin by understanding ULIP plan meaning in detail:
A ULIP policy has been in the market for quite some time now. However, it has gained limelight recently after the new rules introduced by The Insurance Regulatory and Development Authority of India (IRDAI). Due to the IRDAI rules, a ULIP policy is available at low costs today.
A ULIP policy is a combination of insurance and investment under a single integrated plan. Additionally, it is a unique financial product, which is a flexible, transparent, and convenient form of investment. The prime aim of a ULIP policy is to provide financial security to your family in your absence. Apart from financial protection, there are few other parameters, which make a ULIP investment better than the rest:
- Long lock-in period
A ULIP insurance has a lock-in period of five years. As an investor, you should invest in a ULIP policy at a younger age. When you invest in a ULIP policy early, you have more time in your hand to generate funds until the end of the tenure of the ULIP policy. The longer the investment, the higher the chances for the growth of your funds. If you have a substantial amount of money, you can fulfill your life goals like traveling, purchasing a new car or a new house, etc.
- Funds switching option
Under a ULIP policy, you can select between equity funds and debt funds. While equity funds might promise high returns, the debt funds provide security against relatively low funds as compared to equity funds. As a policyholder, you can not only choose funds based on your risk appetite but also switch between these two funds based on the market performance. For instance, you should invest in debt funds when the market is down and shift to equity funds when the market bounces back. The switching feature helps you to protect your investments from market fluctuations.
- Dual tax benefits
A ULIP policy falls under the dual Exempt-Exempt-Exempt (EEE) category. Therefore, it offers tax-saving benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961. As a policyholder, you can claim a tax deduction up to Rs. 1,50,000 under Section 80C on your taxable income. In addition to this, the payout offered to your family in your absence is tax-free under Section 10(10D). Your family can decide whether they wish to receive the payout every month or after maturity (lump-sum amount).
- Low charges
A ULIP policy was previously known for high charges. After the life insurance regulatory rules by IRDAI, the ULIP charges have significantly reduced today. Let’s take a look at the most common charges of every ULIP policy:
- Mortality charge
- Fund management charge
- Policy administration charge
- Premium allocation charge
In a nutshell, investing in a ULIP would allow you to gain more returns and save more for a better future. Since it is a dual-benefit product, you can also financially secure your loved ones from contingencies with the help of ULIP insurance. However, see to it that you select the best ULIP plan based on your investment goals, financial needs, and risk appetite. Choose a reputable company and compare different plans before finalizing a ULIP policy for yourself and your family members.