The full name of the multifaceted life insurance plan known as a ULIP is the Unit Linked Insurance Plan. A ULIP plan combines investment and life insurance. As a policyholder of ULIPs, you are required to pay recurring premiums, of which a portion is used to provide life insurance coverage. The remaining money is combined with assets acquired from other policyholders and invested in financial instruments. With an investment in a ULIP, you can both grow your money and remain financially safe in case of emergencies; they also offer ULIP tax benefits.
Benefits of the ULIP Plan You Should Know
With a ULIP plan, you can select to invest in a range of fund options based on your financial goals and risk tolerance.
A ULIP calculator may also be used to predict the premium that will be paid toward the plan and the anticipated returns, which will help you better grasp “what is a ULIP plan” and its many benefits. Here are a few additional advantages of ULIP plans:
1. Market-linked returns
By investing a portion of the premium into market-linked products like debt and equity instruments, ULIP refers to the ability to obtain market-linked gains.
2. Life insurance with savings
Unit Linked Insurance Plans, or ULIPs in full, assist in safeguarding you and your loved ones against any emergencies in life in addition to investing a portion of the premium into market-related assets.
With the necessity for protection against life’s unforeseen events taken care of, you may establish a regular saving and investing routine and use ULIP plans to accumulate significant wealth over time.
You can attain your financial goals by using ULIPs, also known as unit-linked insurance plans because they give you the flexibility to
- Adapt your choice of investment funds to your changing needs.
- Make partial withdrawals once the first 5-year lock-in period has expired.
- You can invest additional funds (in addition to the normal premium payment) as needed with the help of single premium additions.
4. Level paying premiums
All regular premium or limited-term premium payments made under a ULIP plan must have a level or uniform premium payment structure. For the purpose of providing life insurance coverage, all additional premium payments are treated as a single premium.
5. Tax advantages
ULIP plans offer ULIP tax benefits. Section 80C of the Income Tax Act of 1961 allows for a tax deduction of up to Rs. 1.5 lakh on the premium paid for ULIP plans. At the same time, Section 10(10D) of the Income Tax Act of 1961 exempts the maturity benefit earned under the ULIP plan from taxes.
The tax benefits mentioned in the article may not apply if you opt for the new tax regime since many tax exemptions and deductions have been scrapped within the new regime. They are also subject to any changes in the law.
Among the Most Popular Investment Choices Offered by ULIP Plans are:
The allocated investment amount is used to buy stocks with a Net Asset Value (or NAV) associated with them in an equity fund of ULIP plans. The NAV represents the cost per share, or “unit,” in a fund. Since ULIP plans are market-linked and equity investments carry a high inherent risk due to market fluctuations, as their full name implies.
Using the premium allotted to debt funds, investors can purchase instruments with lower risk than equity investments, such as debentures and government bonds. Debt funds, however, might provide a lower return on investment in ULIP plans when compared to equity investments.
Balanced or Hybrid Funds
Hybrid or Balanced Funds are intended to give capital growth from the equity component while reducing the risk associated with your plan with the help of the debt component. As a result, any loss you experience from the equity element of the fund in the event of market swings is offset by the lower risk but steady returns from the debt half of the fund.
How Do ULIPs Operate?
When you purchase a ULIP (full name: Unit Linked Insurance Plan), the insurance company deducts certain fees before allocating your premium payment to the funds of your choice.
1) Fees for fund allocation
2) Fees for managing policies
3) Fees for fund management
How are ULIP plans Organised?
ULIP plans aggregate money from various individuals before distributing them to various fund options in accordance with personal preferences.
Dedicated fund managers who are focused on achieving certain investment objectives oversee the assets under ULIP schemes.
You must first make an initial lump sum payment when choosing to invest in a ULIP fund. You must then make premium payments for the plan on a yearly, semi-annual, or monthly basis. The estimations generated by the ULIP calculator show that the premium payment obligations differ between different ULIP plans.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.