If you are a new entrant into the financial market, you might have some doubts regarding where to invest. The doubt is only natural as there are numerous financial products available in the market. To get the maximum benefits from your savings, you need to invest your hard-earned money in the best place possible. We all have financial goals to achieve but achieving them along with ensuring life protection coverage to keep your dependents protected is the best option for one to opt for.
This is where the ULIP plan comes into the image. It is undoubtedly one of the best investment options for those who want to save for the long term and also require a life protection cover. This blog will walk you through what is ULIP and why one must invest in it.
What is ULIP?
A Unit Linked Insurance Plan, also known as a ULIP plan, is a blend of insurance and investment plan that offers policyholders the advantage of both wealth creation along with life protection. Under this plan, the policyholder can either make the premium monthly or annually. The part of the premium that policyholders pay towards the ULIP plan is invested towards life insurance cover, while the remaining amount is invested in the financial market. The investments made are subject to market risk and, therefore, should be made according to the risk appetite. While conventional investors can choose debt-oriented funds, more aggressive policyholders can choose equity-based funds. However, one might choose balanced funds if one wishes to create wealth while also having security. Now that you know what is ULIP, let’s dig deeper to know how it is beneficial.
Benefits of ULIP
The Unit Linked Insurance Plan (ULIP) offers numerous advantages to investors. Some of them are listed below:
Life Protection, Savings, and Investment
By investing in a ULIP plan, you will get the best platform to save your money, along with ensuring life protection. It offers a dual advantage to the investor; therefore, the investor can gain peace of mind.
ULIP plan offers an opportunity to help investors earn market-linked returns. A part of their premium is paid towards the funds which are invested in different market instruments like debt, equity, etc. Therefore, the policyholder gets the chance to earn returns based on market conditions.
Buying a ULIP plan will offer policyholders the death benefit in case of the sudden demise of the policyholder during the policy terms.
Upon the maturity of the policy, the insured enjoys several benefits. Also, some companies even offer add-on benefits based on policies’ terms and conditions.
Long-Term Investment Benefits
It is the best plan for those seeking to earn maximum returns on their investment in the long run. It is vital to understand market volatility and invest in the best plan to get the desired returns, Securing the amount for an extended period will make it easy for investors to deal with market volatility and earn a higher rate of return.
Tax Deduction Benefits
ULIPs are undoubtedly the best tools for reducing taxes. According to the Income Tax Act’s Section 80C, the policy premium paid is not deductible. Now that you know what is ULIP and its benefits, when are you planning to invest your hard-earned money in this? Before investing, below listed are some of the things that you should consider as an investor:
- Before investing, you must compare different ULIP offerings in the market.
- The risk in ULIPs is a little higher than it is in schemes like ELSS because ULIP investments are less diversified. Therefore, the investor must consider the risk factor before investing.
- The Unit Linked Insurance Plan has a lock-in period of 5 years; therefore, the investment horizon must be kept in mind.
- Before investing, be aware of all ULIP plan fees, including mortality costs, policy administration fees, fund management fees, and premium distribution fees.
A ULIP plan, therefore, offers two advantages to investors. Therefore, while investing, make sure you read all terms and conditions. In addition, you must compare features and benefits offered by different investors to gain the maximum benefits.