Advantages and Limitations Of ULIPs
Updated On Oct 10, 2023
Unit linked insurance plans are a type of life insurance plan that lets you grow your corpus by investing part of premiums paid into different market-linked investment tools. ULIPs are considered a combination of life cover and investment. ULIP plans are an ideal investment option for people who want to save for a certain period of time with a little bit of risk involved.
Under an ULIP a death benefit is provided to the family of the life assured in case of an untimely demise of the life assured during the coverage period and in case the life assured survives the entire policy tenure, the life assured shall receive a maturity benefit. ULIP schemes are a great way to ensure the financial security of your family from the uncertainties of life.
Advantages of ULIPs
Below are some of the advantages of purchasing a unit-linked insurance plan:
- Life Cover: Unit-linked insurance plans are a type of life insurance plan. Thus, these plans provide life cover to the life assured. In case of an untimely demise of the life assured a death benefit is provided to the family of the life assured. The death benefit can help the family of the life assured to maintain a healthy standard of living even in the absence of the life assured.
- Good Returns: Under a ULIP part of the total premiums are invested into different market-linked investment tools as chosen by the life assured. ULIPs are capable of offering good returns depending on the type of investment fund chosen by the life assured. The returns totally depend on the performance of the investment fund in the market.
Also read: ULIP Or ELSS? Which Is Better?
- Partial Withdrawals: Under a ULIP, the policyholder can choose to make partial withdrawals after the lock-in period given that the withdrawal is not more than 20% of the total fund value. The parietal withdrawals made are completely tax-free and in case of a financial emergency, the life assured can ensure financial support with the help of partial withdrawal.
- Tax-free Returns: ULIPs offer tax-free returns and tax exemption under Section 80C and 10(10D) of the Income Tax Act, 1961. Tax exemptions are provided for the premiums paid towards the ULIP policy.
Limitations of ULIPs
Below mentioned are some limitations of unit-linked insurance plans:
- Relatively Expensive: Since unit-linked insurance plans are a combination of insurance cover and investment premiums charged for a ULIP are expensive as compared to term insurance policies. It may cost a little extra than a term insurance policy but ULIPs do provide dual benefits.
- Lock-in Period: One of the major drawbacks of a unit-linked insurance plan is that this plan has a relatively long period. Under the lock-in period, the life assures/policyholder cannot make partial withdrawals. ULIPs have a lock-in period of 5 years, only after the lock-in period, the life assured can make partial withdrawals.
ULIPs are becoming a popular choice of investment amongst investors, these plans provide dual benefits and also offer tax-free returns.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.