Every individual has a long-term goal, be it buying a house, securing funds for education, managing their child’s welfare, or saving up for their retirement. There are several instruments available for creating wealth over the long haul. Based on your needs, goals, and risk appetite, you can choose from several investment options. If you are looking for an instrument that offers you investment options along with life insurance, you can buy ULIP (Unit Linked Insurance Plan). When you buy a ULIP, the money that you pay as a premium is invested partly in funds of your choice and is partly used towards providing you with life insurance. They are designed for the long term and, if managed well, can lead to wealth generation over the years. Here is how ULIP helps in creating wealth for the long haul:
An investment option for every investor
Compared to traditional investments, ULIP easily offers high returns over the years. Based on your risk appetite, you can invest in funds of your choice. There are several types of ULIPs to choose from, which can be broadly divided into three categories: equity, debt, and balanced funds. Equity funds are high in risk but also provide high returns. Whereas individuals who are looking for safe investment can move their allocation to debt funds. The returns are usually lower than equity. There are also balanced funds where your money is partly invested in equity and partly invested in debt funds. This is an option for investors who are afraid to take risks but are seeking moderate returns, you can simply opt for a balanced fund. In a balanced fund, half of your money is invested in equity funds, and the other half is invested in debt funds. While planning your investment, use a ULIP calculator that allows you to allocate your funds accordingly.
Switch funds anytime
When you buy a financial product, you usually cannot switch your allocation anytime during the policy. If you are unhappy with where your funds are allocated, you would have to withdraw them by paying charges or losing out on the compounding over the years. What a ULIP policy does is that it allows you to move your fund allocation anytime you want. You can switch from debt funds to equity funds and vice versa anytime you want. With market fluctuations, you can make the most of your investment by switching your allocation anytime. With your growing risk appetite over the years, you can change your allocation accordingly as well. The ability to switch your funds whenever you want is quite helpful as it helps you make the most of market fluctuations.
Free partial withdrawals
When you need funds urgently, you cannot withdraw from most financial instruments without paying any charges or dissolving the instrument altogether. With ULIP, it is different; it has a lock-in period of 5 years. After those 5 years, you can withdraw money from your ULIP anytime you want. This partial withdrawal is applicable irrespective of which types of ULIPs you have invested in. ULIP offers free partial withdrawals after the lock-in period. This is a useful feature, as you can opt for partial withdrawals whenever you are in need of urgent funds.
Multiple tax benefits
The tax liability of any financial instrument is one of the key components to consider while buying a ULIP. It is a dual financial product comprising investment and insurance. The premiums that you pay for your ULIP are exempt from taxes as per Section 80C of the Income Tax Act. Under this section, you can claim tax benefits of up to Rs. 1,50,000 annually. Apart from the premiums, the amount that you receive when your ULIP matures is also subjected to exemptions. This is as per Section 10 (10D) of the Income Tax Act, provided certain conditions are met. Also, in case of your unfortunate demise during the duration of your plan, the nominee will receive the death benefit. According to Section 10 (10D) of the Income Tax Act, that is completely tax-free as well.
Helps to save
Being swamped with responsibilities and liabilities, you can find it overwhelming to put aside money every month for your long-term investment. If you procrastinate your investments, you may regret it later, wishing they had invested long back. Since ULIPs offer both investment and insurance, the premiums that you pay for them allow you to save money in the long haul. The disciplined approach of putting money aside every month allows you to collect a sufficient pool for the long haul. You can use tools like a ULIP calculator to ensure that your maturity amount aligns with your goals.
