ULIP (Unit Link Insurance Plan) – Benefits, Returns, ULIP Plans

Investment is essential in today’s scenario. With escalating prices, anything and everything from education to commodities will become unaffordable if we don’t make changes in our habits soon. ULIP or Unit Linked Insurance Plan is an excellent way for insurance and investment as well. ULIP helps you to accumulate small amounts of money regularly which the insurance company bifurcates towards life insurance and into equity or debt funds. This can go a long way towards catering for your children’s education or future endeavours, retirement planning or any other future requirement.

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How does ULIP Help You?

ULIPs have become one of the safest long-term investment plans. Considering the fact that with decreasing value of rupee and the inflation rate, things are not expected to become cheaper any soon. So, it is a smart move to put your eggs in baskets for a brighter future. When you invest in ULIP, the amount invested is divided into 2 parts by the insurance company. One part of your money is invested in shares or bonds while the other is used to provide an insurance cover. The insurance company has fund managers to deal with investments for the clients. However, if you have time and knowledge about the market and its trends, you can switch your investment portfolio between equity and debt. This facility to switch your portfolio is available when you invest in ULIP.

As per IRDAI (Insurance Regulatory and Development Authority of India), the lock-in period for insurance has been changed from 3 to 5 years. However, if you wish to reap maximum benefits from the insurance cover provided by ULIP, you should hold the policy for its entire duration; which is generally 10-15 years. Know more about the various types and benefits of ULIPs

Types of ULIP

You can categorise ULIPs broadly into 3 categories –

On the basis of funds in which ULIPs invest:

  • Equity Funds – Premium paid is invested in the equity market; risky.
  • Balanced Funds – Premium paid is balanced between debt & equity market; minimised risk.
  • Debt Funds – Premium is invested in debt instruments; lower risk, lower returns.

Ultimate Use of Funds:

  • Child Education – Long-term goal of saving for funding children’s future education.
  • Retirement Planning – People wishing to invest for their relaxed future while they are earning.
  • Wealth Creation – Investment to be utilized for accomplishing financial goals.

Death Benefit for Policy Holders:

  • Type I ULIP – Nominee is paid higher of the assured sum value or the fund value in case of policy holder’s death.
  • Type II ULIP – Both the assured sum value as well as the fund value in paid to the nominee on policy holder’s death.

Benefits of Opting for ULIP

  1. Insurance cover: With ULIP, you not only get insurance cover but also investment coupled with it. In the case of untimely death of the taxpayer, the family is assured of financial assistance security.
  2. Tax benefits: Under Section 80 C, the premium paid towards ULIP is exempted from Income Tax. What’s more, returns on the policy post maturity are also exempt from income tax under the Income Tax Act’s Section 10 (10D)!
  3. Flexible investment portfolio: ULIPs allow you the flexibility of switching your investment portfolio from debt to equity based on your risk taking ability and your knowledge of the market. A few switches are allowed free of cost.
  4. Financial assistance for long-term goals: If you wish to save for buying a house or car or your child’s marriage, ULIP is perfect as you get good returns even after the lock-in period (5 years), compared to investing in FD or your savings account.