Reasons why ULIPs can help you to secure your long-term financial goals
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Investor-friendly. Multiple benefits. Suited for every investor profile. That's a ULIP for you. Simply put, Unit Linked Insurance Plans (ULIPs) are hybrid investment options that offer you the dual benefits of insurance and investment. To invest in a ULIP and enjoy all the advantages offered by this investment option, you need to pay a periodic premium. This premium is used to provide you with a life insurance cover and also to give you market-linked returns, because a part of the premium is invested in the markets in the assets of your choice.
Unlike most other investments, ULIPs are flexible and can be customized according to your life goals. In fact, the popularity of ULIPs in India is on a rise, with an increasing number of young Indian investors opting for this unique investment vehicle. An opinion poll revealed that around 90% of the respondents in the age group of 23-25 years preferred ULIPs for two main reasons – insurance protection and wealth creation over the long term.
Let's take a look at some of the reasons why ULIPs are considered to be the one of the perfect investment option for securing your long-term financial goals.
A dependable life cover
Owing to the built-in life cover offered by ULIPs, they make for excellent investment options if you want to fulfill your long-term financial goals. This element ensures that your family's financial situation is secured even if the unfortunate event of your demise comes to pass before the end of the investment term. If such a situation should occur, the plan protects your family from financial difficulties and distress by offering your beneficiaries a 'death benefit.' This death benefit is essentially a lump sum amount of money, which can then be used by your family to meet their financial obligations in your absence.
Potential for high returns
Since a part of the premium that you pay towards a ULIP is invested in either the equity or debt markets, the potential for wealth creation is higher -. The equity markets, in particular, are quite well-known for giving investors good returns over the long term.1 And by starting early and investing consistently across an extended period, you can possibly neutralise the risk factors associated with the equity markets. This makes ULIPs one of the perfect investment option for earning good returns and securing your future and your financial goals.
1 The past performance is not necessarily indicative of future performance.
A reasonable lock-in period
Unit Linked Insurance Plans come with a 5-year lock-in period. While this might sound restrictive, it actually benefits investors who are looking to take the long-term route. Firstly, the long lock-in period actually serves to inculcate investing discipline, since you would be required to remain invested over the entire lock-in period. Secondly, the 5-year lock-in period would helps your investments in the equity markets tide over any short-term snags and unexpected market movements, which could end up bringing the value of your corpus down
Choice of fund options
With a ULIP, you get the complete freedom to choose between a range of investment funds such as equity, debt, or even a mix of both. With respect to equity funds, you also get to choose from further categories of fund options such as large-cap, mid-cap, or small-cap funds. This is why ULIPs are among the most flexible and customizable investment options around. In addition to these choices, you also get the flexibility to switch between these various types of funds at any point during your investment term. This level of control over your investments is what makes ULIPs the right choice for investors who wish to secure their long-term financial goals.
For instance, you could switch from equity funds to debt funds when the market sentiments appear unfavorable, and thereby ensure that your plan for wealth creation doesn't hit a roadblock. And when the equity markets are favorable, you could opt for a high proportion of equity investments in your ULIP portfolio. Or, you could choose to invest in hybrid funds that consist of a mix of both equity and debt to diversify your risk and protect your investments from market fluctuations.
Flexible premium payments
With a Unit Linked Insurance Plan, you also get the ability to select the frequency of premium payments. You could choose to either pay the premium once, as a lump sum amount upfront, or you could opt to make payments at regular intervals – monthly, quarterly, half-yearly, or annually. The choice to make regular premium payments is one of the primary reasons why ULIPs are good long-term financial instruments.
That's because when you make monthly ULIP contributions to the investment funds of your choice, you get to utilize the benefit of rupee cost averaging. When rupee cost averaging is done over a long-term horizon, it allows you to bring down the cost of your investment considerably. This invariably allows you to enjoy greater returns on your investments
When you invest in a ULIP, you get to enjoy several tax exemptions under various sections of the Income Tax Act, 1961. In fact, ULIPs give you the benefits of EEE tax treatments - wherein you enjoy exemptions at three different points. To begin with, up to Rs. 1,50,000 of the premium contributions that you make towards a ULIP can be claimed as a deduction from your total taxable income in each financial year, under section 80C of the Income Tax Act.
In addition to this, the maturity benefits that you receive at the end of your investment term are also completely exempt from taxation under Section 10D of the Income Tax Act. Similarly, the death benefit that the beneficiaries receive upon the demise of the ULIP investor is again completely exempt from taxation under Section 10(10D) of the Income Tax Act.
With so many benefits on hand, you don't have to worry about taxes eating into your ULIP investment returns. Upon maturity of your ULIP, you get to enjoy the entire investment corpus including all the benefits associated with it without having to forego anything to taxes.
As per the new provision introduced in the Union Budget 2021, ULIP issued after 1 February 2021, where annual premium is more than Rs. 2.5 lakhs will be considered as capital assets. Rs. 2.5 lakhs will be considered as capital assets and will be taxable as per the prevailing tax law.
2 Tax benefits are subject to changes in the tax laws, pls consult your tax advisor for more details.
Taking into account all of these factors, it makes absolute sense for long-term investors looking to secure their future to invest in a Unit Linked Insurance Plan. Although it is advisable to invest in a ULIP as early on in your life as possible, it is never too late to get started. Whether you're planning to start your own family or preparing to secure your post-retirement life, a ULIP might just be the answer that you're looking for.
The linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in Linked Insurance Products completely or partially till the end of the fifth year from inception. Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of the investment fund and factors' influencing the capital market and the insured is responsible for his or her decision. Aditya Birla Sun Life Insurance Company Limited is only the name of the Insurance Company and does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document. The various funds offered under this contract are the names of the funds and do not any way indicate the quality of these plans, their future prospects and returns. The Past performance of the Unit linked fund(s) of the company is not necessarily indicative of the future performance of any of these Unit linked fund(s).IN ULIP, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
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It provides life cover and flexibility to choose from 16 fund options & 5 investment strategies giving you the wings to fulfil your dreams. UIN: 109L133V01
- Flexibility to switch between all available funds at no additional cost
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- Choice of 5 investment strategies and 16 funds to suit your varied investment needs
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