Unit-Linked Insurance Plan is a market-linked investment tool that also comes with a risk cover. Recently, this financial instrument has become popular amongst the masses due to its easy to understand investment fund options. Unlike other instruments in the market, you can easily manage the returns based on your risk appetite due to flexible fund switches. Don’t understand what we are talking about? Then you must explore further to learn how Unit-Linked Insurance Plans are a smart and secure investment choice for investors.
- Provides a Life Cover
Due to the uncertainties in life, most investors would love to have an emergency fund for their loved ones. With the help of ULIP, you can easily do this with one investment option. Along with an investment component, you can enjoy the benefits of having a life cover in case of an unfortunate mishap. The insurer would pay out a lump sum death benefit to the family that can be used to secure their financial needs.
- Allows Fund Switches
You may purchase a ULIP plan with a long tenure and over time, you would want to balance your investment risks. In case you had invested in pure equity funds, you can simply move to pure debt funds without much hassle. Based on your risk appetite as well as your current needs, insurers allow you to switch funds in ULIP. So, if you are experiencing lower returns with your current ULIP funds, you can turn towards other available options. Some insurance providers may allow a certain number of switches, which can be checked in your policy documents.
- Offers Complete Transparency
While investing in a ULIP plan, you need to pay several charges such as allocation fees, mortality charges, fund management charges, etc. These expenses are deducted from your premium and the rest is then invested. But when it comes to transparency, you shall be aware of all sorts of charges that you are paying. There will be nothing like hidden charges, and most of the fees will be highlighted by the insurance provider.
- Higher Returns
ULIPs are often compared to various market-linked instruments for increased returns. You can earn high returns from your ULIP policy by staying invested in the fund for the long term. After the lock-in period gets over, the effect of charges on your premium reduces and thus, your returns can grow to give a lucrative corpus. To understand the returns you can earn in the future, you can use the ULIP calculator, which is easily available online.
- Tax Benefits
Unit-Linked Insurance Plans are good tax-saving options that enable you to claim the premium, maturity and death benefit. Under Section 80C of the Income Tax Act, you can claim the premiums paid towards ULIP as a deduction. The maximum amount is capped at INR 1.5 Lakh per financial year. For the maturity and death benefit, you can claim it under Section 10(10D) of the Income Tax Act. But it was recently announced in Budget 2021 that your premium should be lower than INR 2.5 Lakh to claim the maturity benefit as tax-free. If it is more than the capped premium, then the returns shall be treated as capital gains.
- Low Premium Payment Term
For many insurance plans, you have to pay the premium for most of the policy tenure. But not with ULIPs! Even if your policy term is of 20 years, you can choose a lower premium payment term of 5 or 10 years. This helps reduce the long-term financial burden and promote savings.
Now, you know the Unit-Linked Insurance Plan meaning and how it is a smart investment choice from the above pointers. So, start your ULIP investment today after estimating the returns and the sum assured you require with the ULIP calculator online.