What Makes ULIPs Work?


Unit Linked Insurance Plan (ULIP) is a financial product that meets the dual needs of the buyer. It provides life insurance and investment in a single plan. It has recently gained popularity even though the product has existed for decades. The more people understood about ULIP, the more they understood how the policy works and the kind of benefits it offered.

What is a ULIP policy? It is a policy that offers life insurance and investment in a single plan. When you buy one, your loved ones are secured with the life cover and the returns on investments allow you to generate wealth. Once you understand what a ULIP offers as a policy, read further to understand how it works.

Know different types of funds you can choose in a ULIP | ULIP for 2021 | Bajaj Allianz Life- The New Indian Express

Enables wealth generation

ULIPs are created for the long haul and those who stay invested in them for the long haul achieve high returns. You can choose from different ULIPs based on your risk appetite. With these high returns, ULIP benefits you by allowing you to achieve your long-term goals. Be it buying a house, your child’s education, or simply for your future, you can use the wealth earned from this policy to fulfil your goals. The significant returns that it provides make it a fruitful investment for the long haul.

Allows you to switch funds

You can choose the fund allocation of your ULIP based on your risk appetite. The several funds available can be broadly categorised into three types: equity, debt, and balanced. Equity funds offer high returns since the money is invested in equity, but the risk involved is high, too. If you want funds that are low-risk, you can choose to invest in debt funds. If you want to balance the risk and reward, you can simply invest in a balanced fund. ULIP allows you to switch your fund allocation if you are unhappy with it. You can switch from debt to equity or vice versa anytime during the policy.

Secures you and your loved ones

ULIP benefits mainly include providing financial cover to the policyholder. The insurance quotient ensures that your nominee will receive a sum assured in case of your sudden demise. It provides the financial blanket your loved ones need in your absence. Ensure that you choose sufficient coverage so your family can fulfil their needs and repay any liabilities you may have.

Multiply returns with compounding

When you buy a ULIP, you make recurring investments. Designed to be for the long haul, if you hold it for years, your returns will multiply. Along with the returns that you earn from your investments, you also get the benefit of compounding. Over the years, you will earn interest not only on your principal amount but also on the returns of previous years. Compounding multiplies your returns over the years with no additional effort.

Tax benefits on multiple levels

The structure of ULIP is such that an investor receives several tax benefits from it. Under Section 80C of the Income Tax Act, you can claim a deduction on the premiums you pay towards your plan. The exemption limit under this section is Rs 1,50,000 annually. Also, the maturity amount you receive when the tenure of your ULIP ends is also subjected to tax exemptions. In case of your unfortunate demise during the policy, the sum assured received by your policyholder is exempt from taxes under Section 10 (10D) of the Income Tax Act.

Offers free partial withdrawals

ULIPs have a lock-in period of 5 years. After that, you can choose partial withdrawals anytime you want. Free partial withdrawals are helpful when you are in urgent need of funds. In case of emergencies, you know you can access these funds. Unlike traditional insurance where you have to pay charges for withdrawal or dissolve your investment completely, a ULIP is quite flexible.

The above distinct features of ULIP have led to its popularity amongst people. When you are buying one, ensure that you do so from a reputed company. Also, compare the several options available and then choose the one that fits your needs.

Carol P. Middleton
Student. Alcohol ninja. Entrepreneur. Professional travel enthusiast. Zombie fan. Practiced in the art of donating rocking horses for the underprivileged. Crossed the country researching hula hoops in Deltona, FL. Won several awards for supervising the production of etch-a-sketches in Nigeria. Uniquely-equipped for investing in bathtub gin in the financial sector. Spent a year building g.i. joes worldwide. Earned praise for deploying childrens books in Africa.