The need and demand for life insurance plans have increased drastically after the onset of the ongoing pandemic, as life has become uncertain and unpredictable. The search for ideal insurance plans that can secure the financial future of your loved ones in case of your untimely absence has risen significantly. However, do you know that your life insurance policy can also help you grow your wealth? In such a case, you can invest your hard-earned money in Unit Linked Insurance Plans (ULIPs). If you wish to gain more knowledge about a ULIP policy, read on.
ULIP is one such life insurance policy that offers insurance and investment components under a single plan. Part of your premium is invested in equity funds (large, mid, or small-cap), debt funds, or a mixture of both types of funds after the deduction of appropriate ULIP charges. You can select the type of funds where you want to invest your hard-earned money in according to your risk appetite. You can choose the percentage of the amount that you want for insurance and investment.
ULIP policy comes with a lock-in period of five years that gives enough time for your investment to grow. The mandatory lock-in tenure inculcates a habit of savings, which makes you a disciplined investor. However, financial experts believe that you should stay invested in ULIP for a minimum of 10-15 years if you want to earn attractive returns. You can reap the benefits of the power of compounding and capitalize on the returns. In compounding, the amount that you have earned from your investment over the years is re-invested to generate additional wealth. Also, a long period of approximately 15 years helps you to cover up any losses due to poor conditions of the equity market.
One of the best features of ULIP is that offers the facility of switching from one fund to another. So, if the equity market is on the decline, you can move your money from equity funds to debt funds. In such a way, you are safeguarding your funds from the risk associated with the volatility of the equity market. Similarly, if the market is bullish, you can transfer your investments from debt funds to equity funds. In this way, you can have better control over your investment and simultaneously maximize the returns. When you compare ULIP returns in 10 years with most of the wealth-generation instruments, you can see that ULIP is the clear winner. It offers better returns than bank fixed deposits, Public Provident Fund (PPF), Post Office deposit schemes, and many other financial products.
Another key highlight of ULIP is that it offers tax exemptions. You can claim a tax deduction under Section 80C of the Income Tax Act, 1961, for the amount that you pay towards your premium. In this case, the maximum permissible limit is INR 1.5 lakh per annum. Besides this, the death benefit received by the beneficiary of the policy as well as the amount received on maturity is tax-exempt as per Section 10(10D) of the Act.
To sum it up
ULIP is the only life insurance product available in the market that offers the dual benefits of insurance and investment in one policy. If you are skeptical about the returns offered by ULIPs, you can conduct a research on the top-performing ULIP funds and analyze their performances over the years. So, invest in a ULIP that meets your financial needs and is in line with your risk-bearing capability.