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Unit Linked Insurance Plans

Unit Linked Insurance Plans

In addition to traditional plans like endowment and money back life insurance policies, you may consider buying a Unit Linked Insurance Plan (ULIP). It is a type of life insurance product that includes life cover as well as an investment option. A portion of the premium is invested in various products such as mutual funds, shares, or bonds. You may choose between the risk cover and investment as per your needs and preferences.

When you purchase a ULIP, there is an inherent risk associated with the market conditions. Therefore, it is important that you consider your requirements and risk profile before making the investment decision. Additionally, you must consider the future fund requirements and choose a plan that best suits your needs. A ULIP is appropriate for all types of individuals to meet various financial goals such as children’s education, your retirement, or children’s wedding. In addition to providing financial security through life cover, ULIPs offer the benefit of earning higher returns through market-linked investments. Furthermore, the premium paid on the ULIPs is eligible for tax deductions of INR 1.5 lakh according to section 80C falling under the Income Tax Act.

Most insurance companies offer different types of plans. Based on your needs and risk appetite, you must select the right ULIP product. Here are three benefits of ULIPs.

Versatility 

Most plans allow you to choose the amount of life coverage and the premium amount. Additionally, you may switch between different fund options as per your needs and choices.

Minimum guaranteed returns on pension funds

Insurance companies offer pension ULIPs, which offer a minimum guaranteed return on your investment. This reduces the risks associated with the market volatility.

Transparency

You are able to easily view and track the investments in which your money is invested. Moreover, you may track the performance of your plan without any hassle. Insurance companies also provide information on all applicable charges and your net investment to help you make informed decisions.

Systematic investments

ULIPs are an excellent way to inculcate investment discipline. Such types of plans allow you to invest smaller amounts over a period. In addition to letting you save regularly, you are able to reduce your overall cost through rupee cost averaging. For example, when the market is high, lesser units are purchased. On the other hand, when the market falls you are able to buy more units. Therefore, the average cost of your total investment reduces.

Liquidity

Unlike traditional insurance plans that provide either maturity or death benefits, you do not have to wait for the entire period to procure your money. ULIPs are liquid and you may exit your investment five years from the date of purchase. You may surrender your policy without incurring any charges or expenses.

Uses of ULIPs

When you invest in ULIPs, you are able to plan and achieve various life goals. These types of insurance plans allow you to achieve the following goals.

Retirement planning

Fortunately, more people today understand the importance of planning for their retirement. Scientific developments have increased the life expectancy, which makes it necessary to ensure you have sufficient funds to last you through your retirement. Increasing healthcare expenses due to rising inflation also make it important to build a sizeable retirement corpus. ULIPs are an excellent product to include in your retirement plan. A best ULIP plan will help you build a retirement corpus over the long-term. Some portion of the premium may be invested in shares. Historically, stock markets have delivered higher returns in the longer duration, which makes ULIPs an excellent product. It is recommended you invest from an early age to assume higher exposure in the equity market. As you age and get closer to your retirement age, you may move your investment to safer products like bonds. When you retire, you may choose immediate or deferred annuity as per your convenience.

Secure the future of your children

Education expenses are constantly rising. The cost of pursuing higher education in the future will be significantly higher than the current expenses due to inflation. Therefore, you must invest in a way that not only delivers returns but also provides inflation-beating profits. Unit-linked child plans invest your money in the stock markets, which has the potential to deliver higher returns, which in turn is beneficial to secure the future of your children.

Meet critical milestones

You may require funds to meet certain milestones such as children’s higher education, wedding, or for a business venture. ULIPs allow you to withdraw money partially to meet fund requirements at various stages in your life. This ensures you have funds as and when the need arises and do not face any financial difficulties to meet the critical milestones in your life.

Choosing the right ULIP is important to achieve your life goals. An online calculator is beneficial in helping you make the right choice. Here is how the online calculators work.

Understand your investment horizon

If you want to accumulate funds to meet goals such as children’s education or your retirement, you may invest for the long-term. When you have a longer investment horizon, you are able to assume equity exposure, thereby enabling you to earn higher returns.

Assess your risk level

The online calculator will assess your risk appetite to help you make the right choice. If you are unwilling to assume higher risks, you may choose to invest in safer products like bonds. On the other hand, if you are a high-risk taker, you may invest in shares.

Here are some tips that may be beneficial to help you meet life goals through ULIPs.

Top-up your investment

You may pay the premium monthly, quarterly, half-yearly, or yearly as per your financial situation. If you have access to some funds through a bonus or other sources, you may consider topping-up the investment amount. This enables you to accumulate more funds over the long-term.

Assume higher risks

If you receive an increase in your income, you may assume higher risks to benefit from the opportunity of making more returns. An online calculator may help you assess if assuming higher risk is the right decision or not. ULIPs allow you to switch between funds, which makes it simpler to assume higher risks through a plan that is more oriented towards equity markets.

Switch to low-risk funds towards maturity

Once your life goal is two or three years away, it is important that you reduce the risks associated with market volatility. Investing in equities as your goals draw closer is not advisable. It is recommended that you move to low-risk investments to safeguard your capital. The objective is to secure the accumulated corpus and not expose it to an adverse movement in the equity market that may wipe out all your gains.

Investing in ULIPs is quick and simple and the entire procedure may be completed online. However, it is recommended you evaluate all the different plans offered by various insurance companies before making your choice. Additionally, using an online calculator and other resources to understand more about the different plans will help you make an informed decision to buy ULIP online

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