Are you still buying separate insurance and investment plans?

ULIP is a single plan that provides you with both savings and protection. ULIP, or Unit Linked Insurance Plan, is a type of life insurance that also serves as an investment vehicle. It offers significant profits on life insurance while also assisting in tax savings. In fact, given the present market conditions, ULIPs have emerged as one of the most popular investment vehicles.

Before you decide to invest in a ULIP, you need to understand how they function and why individuals choose to do so.

What is ULIP Plan?

ULIP, meaning, Unit Linked Insurance Plan, is a multi-faceted life insurance plan. A ULIP combines life insurance and investing. As a policyholder, you must make regular premium payments, a portion of which is used to provide life insurance coverage.

The remainder is combined with assets received from other policyholders and then invested in financial instruments (equity and debt) like mutual funds. Investing in a ULIP allows you to be financially secure in the event of an emergency while also growing your money.

Now that we have understood the ULIP meaning, let us learn more about ULIPs and how to invest in them.

How Do ULIPs Work?

The premium amount that you pay in a ULIP (ULIP full form – Unit Linked Insurance Plan) is assigned to the funds that you choose after the insurance firm deducts certain costs, such as –

  • Fund allocation charges
  • Policy administration charges
  • Fund management charges
  • Mortality Charges

As a long-term financial strategy, ULIP implies giving several possibilities for wealth growth. The ULIP, on the other hand, as a life insurance product, is intended to give more diverse returns in the form of life insurance cover.

ULIP investments are handled by specialized fund managers hired by the insurance provider. As a result, there is no need for you to keep track of the investments on your own.

You may watch the performance of the different ULIP fund alternatives and move between them (without incurring any additional expenses) if you wish to maximize your profit and deal with market volatility.

Benefits of ULIP:

Wondering what ULIP benefits are? 

A ULIP is a chance to participate in a variety of market-related assets such as equities, debt, and balanced funds to earn long-term investment returns. ULIP stands for Unit Linked Insurance Plans, and it indicates that your investments in funds are vulnerable to market swings. So, depending on your risk tolerance and investing objectives, you may use a ULIP to invest in a range of fund alternatives.

You can also use a ULIP calculator to get an idea of the premium payable and the predicted returns – this will help you better grasp ‘what is ULIP’ and the many ULIP tax benefits. Here are some other advantages of ULIPs:

1. Market Linked Returns

A ULIP is a chance to earn market-linked profits by investing a part of the premium in market-linked assets such as debt and equity (in varying proportions).

2. Life Protection with Savings

Unit-linked Insurance Plans (ULIP full form) help safeguard you and your loved ones from life’s crises in addition to investing a portion of the premium in market-linked products.

As a result, you can benefit from market-linked profits while the ULIP handles your protection needs.

With the need for protection against life’s unforeseen events taken care of, you may create a regular practice of saving and investing and grow considerable wealth over time with ULIPs.

3. Flexibility

ULIPs, or Unit Linked Insurance Plans, assist you in reaching your financial goals by allowing you to:–

  • Depending on your changing needs, you can choose between investing funds.
  • Make partial withdrawals after the initial 5-year lock-in period has expired.
  • Single premium additions allow you to invest extra quantities of money (in addition to the normal premium) as and when required.

4. Level Paying Premiums

All regular premium or limited-term premium payments under a ULIP must have a uniform or level premium payment structure. Any extra premium payments are handled as a single premium to offer life insurance coverage.

5. Even Distribution of Charges

According to IRDAI, the charges charged on ULIP policies are fairly spread during the 5-year lock-in term to assist guarantee that insurers avoid hefty upfront costs. Before investing your money, make sure you understand what the ULIP costs would be.

6. Freedom to choose your investment type

There are two fundamental types of funds: equity funds and debt funds, as well as a hybrid of the two known as balanced funds. Equity funds encompass investments such as the purchase of stock in corporations. Debt funds are funds that invest in debt instruments. Balanced funds invest in both equities and debt funds in equal quantities.

ULIPs allow you to invest in a variety of funds based on your investment objectives and risk tolerance. For example, if you want to increase your wealth and are willing to take a risk with your investment, you can invest in equity funds. Similarly, if you want to earn consistent returns on your investment, you may put your money into debt funds.

You may also switch your money between equity and debt funds utilizing the switch option. Most insurance policies include a set number of free switches each year, with a nominal price for additional switches.

7. ULIP Tax Benefits

The premium paid for ULIPs is tax-deductible under Section 80C of the Income Tax Act of 1961, up to a maximum of Rs. 1.5 lakh. At the same time, the maturity/death ULIP tax benefit is tax-free under Section 10(10D) of the Income Tax Act of 1961.

By investing in a ULIP, you can save tax on your hard-earned money under the Income Tax Act of 1961. You might earn tax breaks at various phases of your life insurance coverage.

Stage 1: Entry Advantage – Sections 80C allow you to deduct your premium payments from your taxable income.

Stage 2: Exclusive Switching Advantage – You may make debt-to-equity swaps that are fully tax-free.

Stage 3: Exit Advantage – In addition, subject to Section 10 requirements, you will get a maturity ULIP tax benefit (10D).

Wrapping It Up

Once you understand the ULIP meaning, the following step is to select the best-suited insurance for you among the available possibilities. So, before you invest in a ULIP, you should compare and evaluate your options to select the finest ULIPs accessible in India.