How Can ULIPs Help In creating Long-Term Wealth?
Published On Mar 24, 2022
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The ULIP is a fantastic investment instrument that seamlessly combines the benefits of both an insurance policy and a market-linked investment. In essence, they are a wealth-building instrument that may help you achieve your financial goals in the medium to long term. A ULIP's premium is split into two parts: one for life insurance and the other for stock and bond investment (following the stated mandate). As a result, ULIPs have earned a reputation for providing both safety and steady savings, as well as the flexibility to invest in either an equity or a debt-based fund portfolio, depending on your risk tolerance. Customers can also choose between stock and debt asset allocation in ULIPs based on their risk tolerance. A customer has the option of investing in 100% stock or debt. In addition, many insurance companies do not charge costs for shifting funds. The consumer has the option of partially or completely withdrawing their funds after five years.
How Can ULIPs Help You Build Long-Term Wealth?
ULIPs have gained in popularity and are now considered one of the most important investments. While engaging in Unit Linked Insurance plans, keep the following aspects in mind for long-term wealth generation here are a few reasons why ULIPs can help you build long-term wealth:
ULIPs provide you a lot of flexibility when it comes to funding options, changing life insurance, and adding riders. You may also add top-ups to your investment portfolio to take advantage of new investment opportunities created by market changes. You can enhance your earnings by keeping a tight check on your assets.
Investing in a Strategic Way
ULIPs are designed to assist you in achieving long-term financial objectives such as purchasing a home, sponsoring your child's education, or purchasing a new automobile by allowing you to build a sizable corpus methodically. Because of the potential of compounding, ULIPs provide significantly larger rates of return. Long-term investment also allows you to absorb market risks while increasing your money quicker over a longer period.
ULIPs do remove a percentage of your Unit Linked account money in the event of an emergency or an unanticipated occurrence, but only after 5 years from the commencement date. The best aspect about such deals is that they come with tax advantages.
Benefits from Taxes
ULIPs provide not only life insurance and significant returns but also two tax benefits. ULIP premiums are tax-deductible up to Rs. 1,50,000 under section 80C of the Income Tax Act, 1961. Furthermore, all dividends paid at the time of maturity are tax-free under Section 10(10D) of the Income Tax Act of 1961*. Taxes are subject to change based on relevant tax regulations.
ULIPs are available in a variety of options, according to the investor's financial goals, risk appetite, and investment horizon. Some ULIPs play it safe by investing a larger portion of their money in debt instruments, whilst others only invest in stocks. Everything depends, once again, on the type of ULIP chosen for investing, as well as the investor's risk appetite and preferences.
A ULIP is a contract that also functions as an investment vehicle. A part of the money is utilized to provide the policyholder with insurance coverage, while the balance is invested in different equity and debt schemes. The money collected by the insurance firm is put into a pool of funds, which are subsequently invested in various market instruments (debt and equity) in changing quantities, much like mutual funds.
Also Read: Top Reasons to Hold on to Your ULIPs
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.