How Do You Use Your Life Insurance to Build Wealth?
Updated On Apr 22, 2021
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Building wealth is a continuous effort in the long run, given that you start from zero. However, you can build substantial wealth over your earning years, with a little strategy and clarity on your financial goals. Fortunately, there is more than one way to do this, like pension plans, life insurance savings, etc. Life insurance provides coverage for a person’s entire life. Permanent life insurance policies build cash value.
Also Read:- Reasons To Purchase A ULIP
How Life Insurance Can Accelerate Your Wealth?
Life insurance is a common way to increase after-tax wealth and people can have more money to pass on to their heirs. Here are some tips that you can follow building wealth through life insurance
1. Choose the Right Policy for Your Wealth Portfolio
Ideally, the most suitable investment strategies are Endowment and Money Back plans. With flexible premium payment plans, these policies earn you strong returns. Therefore, avoid high-risk investments that drain your income (salary) every month from your salary account. You may opt to pay weekly, quarterly, half-yearly, or annually for insurance plans. It also allows self-employed individuals to ease the burden of investing like a salaried employee.
2. Invest in Unit-Linked Insurance Plans (ULIPs)
ULIPs combines investment with life insurance. You are expected to pay regular premiums for a ULIP, much like pure life insurance. At the point of buying the contract, the premium balance will be split between premiums and the investment plan chosen by you. With ULIPs, several insurance companies offer equity, debt, and hybrid fund solutions. The returns are market-linked from these plans. Within a certain lock-in date, you are entitled to withdraw the investment component of the plan or the same will be granted to your beneficiary in the event of your death.
3. Guaranteed Returns Plan
You will also find guaranteed return policies 'with bonus' (participatory) and 'without bonus' (non-participatory). The insurance agent will periodically apply a certain bonus to the guaranteed amount of the policy in the bonus option. These benefits are not, however, assured and depend on the income that the insurance company earns. The policy would often have a guaranteed return/addition instead of the bonus if you go for the without-bonus option. For those looking for life insurance to create wealth, the assured returns provided by such policies make them an outstanding option.
4. Tax Benefits
You can earn tax benefits such as tax deductions under Sec 80C (on the premiums paid) and tax exemption under Sec 10(10D) (on the maturity amount) when investing in insurance plans. For the premiums as well as for the maturity amount, you can claim tax exemption and make your wealth portfolio a lot more substantial.
You May Also Like to Read:- What is the Right Time to Purchase a ULIP?
If you were searching for low-risk and profitable return investment instruments, look no further, because an insurance policy is an option you are looking at. Your premiums do not directly participate in the stock market or the share market, unlike other instruments that offer high returns. Therefore, returns are thus not significantly impacted by market conditions, and without any barriers, your wealth keeps building.