Unit Linked Insurance Plans are more commonly known as ULIPs, are the insurance products that offer the advantages of both investment and life insurance. To fulfill this purpose, the premiums paid against ULIP investment are divided into two major parts. One of the parts goes directly to life insurance for providing life cover and the other part goes to the money market for investing in various other investment instruments. As an investment product ULIP provides many inherited benefits, but here we are discussing some of the top advantages that it offers:
Offers Advantage of Both Insurance and Investment
ULIPs are the plans that provide the benefits of both investment and insurance. By opting for ULIPs you do not have to search for two different products separately for resolving your investment and insurance needs. All you need to do is to simply select ULIP investment plan and you are done. In addition to this, if you feel like your life coverage is not sufficient, you can opt for additional coverage like life cover rider.
You Can Modify the Risks
Many people avoid ULIP investment as they think that it is a high-risk instrument, however, it is not true. This is because ULIPs give you an option to select your investment funds as per your risk appetite. If you are among those who are ready to take risks, then there is an option of aggressive funds in ULIP. However, if you are among those who want reduced risks in the investment, then there are options of balanced funds. Moreover, most of the ULIP providers give you the option of free switches among funds. So you can always modify risks.
Affordable Investment Instrument
The ULIPs were considered expensive investment instrument until 2010. However, after that, the involvement of IRDAI in it has reduced its cost and hence they have become more accessible than before. ULIP investment has shed down from 6 to 10% which is approximately 3% for the plan of 5 years and 2.5% for the plan of 10 years. In this way, ULIP has become even cheaper than mutual funds.
Best as Long Term Investment Plan
ULIP investment is the best for those who want to invest their money for long term. It is seen that ULIPs of 10 years or more give the best returns than those taken for 5 to 10 years. This is because the longest term makes the most of the compound interest that takes place. One more reason for keeping ULIP as long term investment plan is, it gives you an opportunity to waive off the mortality charges.
Additional Inclusions at Low Cost
Same as traditional insurance policies, you can easily enhance the coverage by selecting a suitable rider. This becomes easy when you want to add some health coverage or accidental coverage in your existing policy. The charges of the additional coverage or riders are negligible if you compare a plan with the similar coverage and benefits.
You Always Have the Feature to Discontinue
It was a misconception that no one can discontinue ULIP investment. You always have the option to discontinue your ULIPs even after its lock-in period is over. After some changes in the ULIP investment by IRDAI, the lock-in period is increased from three years to five years. In addition to this, no one has to pay the surrender charges after completion of the lock-in period.
Not all the investment options give the opportunity to get the tax benefits, but being life insurance product ULIP investment offers tax benefits. For all the premiums that you pay against ULIP offers the tax benefits under section 80C of the income tax act, 1961. While all the payouts that are received come under section 10D of the income tax act, 1961. In this way, you not only save your money by ULIP investment instead you get the tax benefits as well.
Factors to Consider As an Investor While Purchasing ULIP
Above mentioned are some of the top advantages that you get when you invest in ULIPs. Following are a few factors that you must consider while purchasing ULIP:
Your Financial Goals
Before investing in ULIP, it is advised to know your financial goals first. If you want to invest your money for a long term and want to build wealth, then ULIP investment is suggested.
Keep Your Risk Appetite in Mind
Since ULIP investment gives you an opportunity to switch the fund options, thus you can select your fund option as per your risk appetite. Therefore, it is advised to keep your risk appetite in mind before deciding the fund option.
Compare the Offerings of ULIP
Once you are clear with your financial goals and understand your risk appetite, it is time to decide which ULIP investment you want. To decide this, you can compare ULIPs offered by different insurance providers.
Before finalizing any ULIP investment option, it is suggested to know the basic investment rules and all the inclusions and exclusions. Most of the ULIPs have a lock-in period of five years and if it is surrendered in the initial 3 years, then the insurance plan is ceased immediately. However, the value of surrender is paid after three years only.
To sum it up, there are several investment products available in the market, but opting for ULIP gives you unique advantages as mentioned above. The major advantage is it provides life insurance, saves taxes, and helps your hard earned money grow to fulfill your future goals at the same time. So, what are you waiting for? Start ULIP investment and enjoy the benefits offered by it.