As an earning individual, you may have specific financial goals, and to accomplish those goals, you may invest in different financial instruments. At the same time, to ensure your family’s security and get protection against uncertainties, you may buy insurance like life insurance and health insurance. However, managing multiple investments and insurance policies can be challenging, especially if you are not financially savvy.
So, how to ensure that you invest towards accomplishing your goals and get insurance protection simultaneously. The answer is ULIP – Unit Linked Insurance Policy. It is essentially a life insurance policy that has an investment and savings component.
What is ULIP?
ULIP is a unique financial product that is a combination of insurance and investment. When you pay the premium for ULIP, a part of the amount is used for providing life cover. And the remaining amount is invested in different asset classes to generate income for you.
You can decide where you want to invest based on your financial goals and risk-taking capacity. The fund managers make the investment decisions and invest in specific funds so that you get valuable returns.
Benefits of investing in ULIP
- Triple tax benefit
ULIP plan is one of the few investment instruments that enjoy EEE (Exempt-exempt-exempt) tax benefits. The premium you pay for the policy is exempt under Section 80C of the Indian Income Tax Act. After policy maturity, the proceeds you receive along with the accumulated returns is tax-free. You can also withdraw partially from the accumulated corpus after the lock-in period without any tax liability.
Lastly, the death benefits that your family may receive in the event of your demise, the amount is exempted from tax.
- Option to switch funds
Another significant benefit of investing in ULIP is that you can easily switch the exposure ratio in different fund classes as per your changing risk-taking capacity and goals. For example, if you have invested a large portion of the funds in equity funds, you can switch your investments in debt funds or hybrid funds or vice-versa. Also, when you switch the funds, you need not pay any charges.
However, some ULIP plans may limit the number of switches you can make in a financial year. So, make sure that you read the policy terms carefully to avail free switch benefits.
- Transparent structure
ULIP has a very transparent structure. It allows you to keep track of your investment portfolio, and you also get regular updates about the charges levied, changes in the percentage of premium and investments. You can also get information about the number of units of mutual funds you have in your portfolio and their current value. This helps you to take appropriate action and make an informed investment decision.
- Riders extend the coverage
With ULIPs, you can purchase riders to get additional protection against specific risks that are not covered under the standard ULIP. For example, suppose your family has a history of cancer. In that case, you can consider buying a critical illness rider to get protection against life-threatening diseases as you may be vulnerable to cancer. Assess your specific needs and purchase suitable riders to extend the coverage scope.
Thus, with so many benefits of ULIPs, it is an excellent investment to have in your portfolio. It allows you to earn valuable returns and accumulate a corpus while you get insurance protection.