Unit Linked Insurance Plan Explained
Updated On Oct 15, 2021
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A Unit Linked Insurance Plan, or ULIP, is a financial vehicle that combines insurance and investment functions into a single plan. The life insurance component accounts for a minor fraction of the premium, while the remainder is invested in a systematic manner. Similar to mutual funds, the assurer offers this investment in a selection of qualifying investments with variable amounts of debt and equity equities. The performance of the fund you choose will determine your investment returns.
You pay a monthly payment for the plan, some of which is invested in life insurance and the rest in your choice of funds (whether equity, debt, or hybrid).
When your insurance matures, you'll get the total value of all the funds you chose. In the case of your death, however, your nominee or beneficiary receives the higher of
i) The Fund value
ii) The agreed-upon amount
iii) 105 percent of premiums paid up until the death date (the amount received as death benefit also depends on whether your policy is a Type 1 or Type 2 ULIP).
Unit Linked Insurance Plan Explained
Some of the benefits of buying ULIPs are listed below:
1. The ULIP's Lock-In Period
The Insurance Regulatory and Development Authority of India (IRDAI) increased the lock-in term from three to five years in 2010 as one of the improvements it made to ULIPs. However, because insurance is a long-term investment, you may not reap the full benefits of the policy unless you hold it for the entire term, which can last anywhere from 10 to 15 years.
2. Income Tax Benefits
Many people are surprised to learn that ULIP premiums can be deducted from their taxes under Section 80C. In fact, the policy's maturity returns are tax-free under Section 10(10D) of the Internal Revenue Code. You can take advantage of the two benefits of this policy.
3. Finance Long-Term Objectives
A ULIP is a fantastic investment option if you do have protracted goals in mind, such as buying a house, a new car, or getting married, because the money is multiplied. As a result, overall net returns are higher. This is true even if you opt to quit after the 5-year lock-in period, rather than placing the money in a savings account or a fixed-income investment (FD). The tagline for ULIPs, on the other hand, is to keep the policy active for a longer period of time to get the most out of it.
The capacity to move your investment among debt and equity depending on your risk tolerance and market knowledge. As previously said, ULIPS are often designed to allow you to swap your portfolio between debt and equity-based on your risk appetite and understanding of market performance. On the other side, insurance companies only allow a limited number of free swaps.
5. Life Insurance
ULIPs give both life insurance and investment options. In the event of an emergency, such as the taxpayer's untimely death, it gives financial stability to the taxpayer's family.
ULIPs are unique among financial vehicles in that they provide life insurance as well as investment opportunities. It's a simple way for you to get into the market and get the benefits of risk-taking while delegating the chore to specialists. They are even more appealing as a result of tax benefits and flexibility of choice. By allowing you to track your portfolio's performance, ULIPs give you more control. ULIP investments are intended to assist you in achieving your wealth-building objectives, such as saving for a child's education or accumulating a retirement fund. Future Generali offers ULIPs that are purpose-driven and align with your overall goal.
The premium for a ULIP for Retirement must be paid throughout your whole employment period. After you retire, you can utilize the money to buy annuities.
Also read - Why ULIPs Are For Wise Investors?
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.