7 benefits of Investing in Unit Linked Insurance Plans (ULIP)

ULIP or Unit Linked Insurance Plan is a unique financial product that is a combination of insurance and investment. When you purchase a ULIP, you get life cover and the opportunity to create wealth in the long run. The insurance company uses a portion of the premium for providing insurance protection and invests the rest in different assets classes based on your risk appetite and long-term goals to generate valuable returns.

When you invest in ulip , the professional fund managers associated with the insurance company manage your investments on your behalf. This means the fund managers make investment decisions based on your specific goals and risk-taking ability. You need not have to go through the hassles of keeping a constant watch of the market movement and tracking the investments; the fund manager will do that for you.Apart from getting the benefit of a fund manager’s knowledge and expertise, ULIPs give you the flexibility to switch your investments from debt funds to equity funds and vice-versa. Depending on your changing risk appetite, goals, and market performance, you can switch your investments to maximise the chances of getting higher returns.One of the significant features of ULIP is that since it is a long-term investment-cum-insurance product, it comes with a lock-in period. Initially, ULIP had a lock-in period of three years. But, in 2010, the irda (Insurance Regulatory and Development Authority of India) increased the lock-in period to five years.This means you cannot withdraw the funds during the lock-in period (i.e., five years). Also, it is better to hold the policy for a longer tenure, which can range from 10 to 15 years or more, to reap maximum benefits.Now that you are aware of how ULIP works let us know more about its benefits. Also Read: All About ULIP - Unit Linked Insurance Plans

One of the main reasons many insurance buyers in India prefer buying ULIPs is its hybrid nature. It offers the dual benefits of Insurance and Investment under a single umbrella.
When you purchase a ULIP, you essentially secure your family’s financial future. The insurance component ensures that your family will never face any financial hassles as the insurance company will pay the death benefit to them if something happens to you.At the same time, the investment opportunity allows you to build a sizeable corpus in the long run for your future goals like building a retirement corpus, leaving an inheritance for your children/grandchildren, etc.

1. Triple Tax-saving Advantage ULIP is one of the few financial products that enjoy the triple Exempt, i.e., EEE tax status. This means as a ULIP holder, you can avail of tax benefits during three stages – investment, withdrawals and returns.The premium you pay for the ULIP is eligible for tax deduction up to Rs. 1.5 lakhs in a financial year under section 80c of the Indian Income Tax Act.After the lock-in period (5 years), if you withdraw the funds from ULIP, the entire amount is tax-free.Lastly, the maturity proceeds you receive after the policy term is fully exempted from tax.Thus, apart from helping your build corpus for the future, ULIP also allows you to enjoy valuable tax benefits every year during the investment period and reduce your annual tax liability.
2. High returns potential ULIPs are known to offer higher reruns compared to other insurance products. This is mainly because, in ULIPs, the fund managers invest your money in different asset classes like government bonds, debt, equity mutual funds, etc. Also, since you have the flexibility to switch your investments, you can increase the returns potential based on the market performance.The returns you get from ULIPs mainly depends on the funds’ performance during the investment tenure. So, while there is risk involved, the rewards potential is also high. Other insurance products like the Endowment policy pay a fixed amount on policy maturity.Today, many investors who were earlier inclined to invest in risk-averse investment avenues like bank fixed deposits now prefer investing in ULIPs that provides dual benefits of market-linked returns and tax savings.
3. Flexibility ULIPs offer you immense flexibility in choosing the fund options, changing the life cover, choosing riders, and increasing or decreasing the premium amount.When you invest in ULIP, you can choose where you want to invest based on your return expectations and risk appetite. For example, if you are looking for steady returns and do not want to take high risks, you can invest most of your funds in safer options like debt funds, government bonds, hybrid funds, etc.On the other hand, if you want to build a high corpus faster and are willing to take the risk, you can invest a significant portion of your funds in equity-oriented funds. Historically, such funds are known to deliver valuable returns in the long run.Apart from choosing your investments, ULIPs also give you the flexibility to customise your insurance protection plan by adding riders to it. You can get additional protection and get coverage against specific risks that are not covered under the basic plan. For example, if you work in a high-risk environment, you can choose an accidental death rider or disability rider.
4. Top-up facility ULIPs allow you to increase the investment amount through the top-up facility. If you have any surplus cash, you can invest the extra amount in your existing ULIP policy and take advantage of the existing funds that have been performing well and increase the fund’s growth.
5. Transparency This is another significant benefit of investing in the ULIP plan. When you invest in ULIP, the insurance companies provide you with the complete details about the charges levied, the different funds where your money is invested, the returns potential of the funds, past performance of the funds, etc. Thus, with such helpful information, you can make a more informed purchase decision.
6. Low surrender charges Surrender charges are appliable when the policyholder decides to surrender their ULIP plan before the maturity period. If you find yourself in such a situation where you are not able to pay the premium or think the plan is not suitable for your needs, you can easily pay the surrender fees and get rid of the policy for good.In the case of traditional insurance plans, the surrender charges are exorbitant. However, ULIPs have a relatively lower surrender charge.

With so many excellent benefits of ULIPs investment, they are a valuable addition to your financial portfolio. You can build a corpus in the long run at the same time, enjoy the peace of mind knowing that your family has sufficient insurance protection against the uncertainties.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.