Find your suitable insurance plan
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5 min read
Updated on Mar 13, 2023
ULIP’s full form is Unit Linked Insurance Plan. As you choose a ULIP plan, you will have a dual benefit, which is insurance as well as investment. ULIP investments come with high returns. As you invest in a ULIP, the money is divided into two parts; life coverage and investment toward money market instruments. Considering your future financial goals, you choose the ratio of your ULIP insurance cover or ULIP investment. Whatever ratio you choose; you are going to get financial benefits.
If you are still wondering, ‘why should I invest in ULIPs?’, here are seven reasons for you.
As you choose to invest in ULIPs, you do not have to be bothered about the financial security of your family in case of your untimely death. This means the nominee of the policy gets a fixed sum of money in case of the death of the policyholder.
ULIP is like no other financial tool in India that offers dual benefits, which include investment benefits and insurance coverage. This means you do not need to invest your money and buy an insurance policy separately.
Also Read: Difference Between Money Back Plans and ULIPs
Under Section 80C of the Income Tax Act, the investments that you make for ULIPs are tax exempted. Each year, you will be able to claim up to INR 1,50,000 on the ULIP investments. Likewise, the returns you receive during the maturity of the ULIP are exempted from tax under Section 10D of the Income Tax Act. If the policyholder passes away, then the nominee receives the amount, which is exempted under Section 10 (10D) of the Income Tax Act.
The returns on ULIPs are more than the other investment options. The high returns are possible only because of the flexibility that is offered between debt funds and equity.
In most cases, as you invest, you get a lock-in period during which you cannot withdraw the funds. However, with ULIPs you will not have to deal with such situations. You can make withdrawals if you invest in ULIPs even during the lock-in period. You need to be aware of the fact that certain deductions may happen in one such case.
Know More: Why are ULIPs a Good Investment for a 20-Year Horizon?
When it comes to investment options, ULIPs offer flexibility. The flexibility can be in the form of premium redirection, fund switch, or top-up options.
By paying premiums for ULIPs for several years, you will be able to enjoy long-term benefits. By doing so, you can invest your money in the market for a longer time, which is likely to bring you higher returns.
Also Read: What is the meaning of absolute returns in ULIPs?
| Type of funds | Nature of risk | Type of returns |
| Bond funds | Medium | Low to medium |
| Equity funds | High | High |
| Cash funds | Low | Low |
| Balanced funds | Medium | High |
| Particulars | ULIPs | PPF | ELSS |
| Lock-in Period | 5 Years | 15 Years | 3 Years |
| Taxation | Gains are taxable; however, it depends on the underlying asset | None | Gains more than INR 1 Lakh in any fiscal year are taxable under LTCG at 10% |
| Tax Benefits | 80C and returns from policy upon maturity are exempted under Section 10 (10D) | 80C and maturity amount exempted from taxation | 80C |
| Risk | Highest as compared to the other two | Risk-free since it is backed by the government | Less risky as compared to ULIPs |
| Underlying assets | Equity, debt, and balanced | Fixed income-oriented | Equity |
| Charges | The minimum five charges of ULIPs are:
|
One-time account opening charge, which costs INR 100. | The expense ratio is in the range of 1.05 and 2.25%. There are only a few plans that come with an expense ratio that is more than 2.25% and may even go up to 3% or even more. |
As you plan to invest your money in ULIPs, here are a few things that you must consider.
As ULIPs are affected by market fluctuations, their performance is linked to market trends. The best way to evaluate the fund performance is by comparing the market benchmarks with the past performance of funds.
Conclusion
ULIP can be a perfect solution for investors who are looking for the right balance of profitability and insurance benefits. They can play an important part in long-term financial planning and meeting life goals while maximizing the prospect of wealth creation for the investors.
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Investing in ULIPs makes all the sense since it generates profits and also at the same time you get insurance coverage. This means you get twin benefits. In SIP, your wealth grows steadily over the years. However, as you invest in ULIP, you not only get returns on your investment but also get insurance coverage. The investment returns on ULIP depend much on market conditions. However, the insurance plan comes with a guaranteed return in form of regular monthly income. The average return on ULIPs is 10-12%. However, you can expect this percentage only if you keep investing in ULIP policies for at least 10 years.
FAQs: Reasons to Invest in ULIPs
Is investing in ULIP a good idea?
Is ULIP better than SIP?
Will investing in ULIP provide me with a guaranteed income?
What is the average return on ULIP?
PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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