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Understand How ULIP Premium Is Used

Updated On Feb 20, 2022

A ULIP is a modern life insurance policy that provides both insurance and investment benefits. It's a safety net that ensures your family's financial security when you're gone, while also earning market-linked returns to assist them in building a bright future while you're still alive. Furthermore, as required by tax regulations, ULIPs provide tax benefits both at the time of purchase and at the time of maturity. The gap between income and inflation is widening, and the only way to close it is to make wise investments. ULIPs are one of the most popular investment alternatives right now. You may choose a goal-based ULIP if you have financial goals in mind, such as your children's marriages or higher education, or your retirement. A five-year lock-in period applies to ULIPs, and market-linked returns may help your money grow over time.

Recognize the Functions of ULIP Premium

Here's all you need to know about how your ULIP premium is spent:

  • ULIP Has Two Benefits

A ULIP might be used to fund your retirement, your children's higher education and marriage, or any other financial requirement in the future. The ULIP's insurance component provides life insurance with a death benefit. If the policyholder dies during the policy term, the death benefit will be paid to the nominee. Furthermore, if the client lives to the end of the period of the ULIP, he or she may be able to contribute to the maturity value.

  • Long-term and Effective Instrument

Investors looking for a long-term insurance plan that combines market-linked gains with life insurance in a single policy can consider ULIPs. Depending on market conditions, equity can help provide high-growth potential returns over the long term. Your corpus is better protected from market volatility because of the loan component. You can purchase a ULIP based on your objectives and risk tolerance. After a specific period, ULIPs allow you to make a partial withdrawal. There may also be a top-up option that allows you to increase the amount invested in your plan.

  • Taxation's Advantages

ULIPs are tax-deferred as well. If certain conditions are satisfied, ULIP investments can be deducted from taxable income under Section 80C of the Income Tax Act of 1961. This provision allows you to deduct up to Rs 1.50 lakh every year. Under Section 10(10D) of the Income Tax Act, the maturity gains from a ULIP are also tax-free, subject to certain conditions. The death benefit granted to a nominee in the case of a ULIP investor's death within the plan's term is exempt under Section 10(10D) of the Income Tax Act of 1961.

  • Charges for Withdrawing Partially

If you remove part of your insurance during the policy's term, you will be charged a partial withdrawal fee. Various funds levy these fees in whole or in part. The terms and conditions of the ULIP, as well as the different fees associated with investing, should be understood. These expenses are important because they affect the overall return on your insurance investment. If you're unsure how much premium you'll need to build a large enough corpus to meet your financial goals, see an expert.

  • Death Charges

Every year, everyone is required to recover or renew their unit-linked insurance plan's life insurance policy. The policyholder's medical history, Sum Assured, age, and other factors all play a role in determining these mortality expenses. As a result, your ULIP fund units are reduced in proportion to the insurance expenses.

Take Away

ULIPs can help you achieve your life goals and live a more meaningful existence. ULIPs provide not just life insurance and market-linked asset growth, but also additional tax advantages. Because of the many benefits that ULIPs provide, you should think about including them in your investment portfolio to strike a balance between your insurance and investment demands.

Also read - Which Investors Are the Best Fit For 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.

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