Looking For Investment Option? Here Are Some Reasons Why You Should Consider ULIPs
Published On Sep 14, 2021
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When equities markets become too volatile for individual investors, they are compelled to seek protection. You'll also note that when you're having problems with your business or your job, equities markets tend to turn upside down.
Equity markets, of all, are meant to reflect the genuine market situation on the ground. As a result, some of your overall investments should be in safe vehicles, while others should be in products that allow you to switch between equities and fixed income.
Unit Linked Insurance Plans (ULIPs) are a one-of-a-kind investment that allows you to accomplish both, and they do it with the highest tax efficiency of any investment. But that's not all; the greatest ULIPs provide considerably more than tax-advantaged investing opportunities.
Reasons Why You Should Consider ULIPs
The following are few reasons why you should consider ULIPs:
Dual I-I Benefit
ULIPs offer life cover, which offers insurance benefits to the insured's family members during the policy tenure, with the dual (I-I) benefit of investment and insurance. Furthermore, at the moment of policy maturity, it provides returns on investment. The policyholder allocates a predetermined portion of the total premium to invest in the preferred instrument (debt and equity). This diverse investment strategy aids them in achieving their long-term financial objectives.
Triple E-E-E Benefit
The triple EEE (Exempt-Exempt-Exempt) benefit is available to ULIP policyholders. This shows whether a policyholder is eligible for a tax refund at each of the three stages: investment, returns, and withdrawal. They can deduct the premium they paid from their taxable income each year. The nicest feature about ULIPs is that they are tax-free, unlike mutual funds. The policyholder can withdraw their funds as well as the accrued returns when the lock-in term expires. As a result, any tax on the maturity amount or sum assured is waived. Aside from that, the proceeds of maturity are tax-free.
Must read: 6 Myths About Investing In ULIP
Advantage Of A Top-Up
The policyholder might raise his or her investment amount by investing in a ULIP. They can use the top-up facility to invest additional funds in their existing insurance. If their current fund is performing well, they can easily invest any excess funds in the existing premium amount to share in the fund's development.
Option To Switch
The switching option allows policyholders to change their equity, hybrid, or debt fund exposure ratios according to their risk profile and the performance of various funds. Furthermore, the amount invested in equity and debt securities is determined by the risk appetite of the investor. ULIPs are possibly the only financial tool that provides policyholders with flexibility. This ‘switching' provision allows policyholders to transfer all or part of their investment from one fund to another without incurring any fees. Policyholders who are interested in capital market movements can take advantage of this unique service from the comfort of their own homes. They can also go to the nearest branch of their ULIP provider. The majority of ULIP Plans include a limited number of free changes per year.
ULIPs typically have a lock-in period ranging from three to five years. After the lock-in term expires, the policyholder has the option to cancel the insurance. The accrued corpus is allocated to a discontinuation fund in this circumstance. All insurance companies are required to make returns to their customers. The primary goal of the discontinuation fund is to distribute funds from lapsed plans. Liquidity is not supplied to the policyholder during the lock-in period. After the lock-in term expires, the insured is free to withdraw funds as needed. After deducting the required discontinuance/surrender fees for the respective PO, the money would be paid.
ULIPs are ideal for safe investors since they are flexible, convenient, and goal-oriented life insurance investments. If you choose to avoid equity market risk, a ULIP can provide you with the security of a fixed-income investment while also allowing you to earn tax-efficient returns.
Also read: What Is Absolute Return In ULIP Plan?
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.