What Makes A ULIP The Ideal Investment Plan for You

Consider ULIP As an Ideal Investment Option for these Reasons!

What if you can get a plan that can help you with the dual benefits of insurance and investment? An investment cum insurance plan that can offer you an opportunity to grow with market-linked returns. ULIPs are quickly becoming one of the most popular financial products for investors with all types of life goals, from young people who have just begun their professional lives to senior professionals who are getting close to retirement. Because of their many advantages, ULIPs have attributes that add to their continued popularity.

Unit-linked Insurance Plan combines the benefits of investments with insurance, along with a portion of the premium going towards purchasing life insurance. Where does the remaining premium go, then? Like a Mutual Fund, the insurance provider pools the total premiums it receives and invests them in various debt and equity instruments. As a result, ULIP offers you both - financial safety for your family, and long-term wealth creation with market-linked returns.

How, then, does the investment component of these plans operate? Do ULIP owners have any say in the selection of investments? The answer is yes! You have the choice to alter your investment choices in accordance with your requirements and risk tolerance.

The first thing to understand from an investor's perspective is that ULIPs aid in the creation of long-term wealth through investments in market-linked financial instruments. The investment component of a ULIP can provide significant liquidity either at maturity or during the policy term through partial withdrawals from the corpus. But these withdrawals are not allowed immediately after you start investing in a ULIP.

Are There Any Withdrawals Allowed in a ULIP?

There is a lock-in period involved during which you are not allowed to make any withdrawals from the accumulating corpus. However, after this lock-in period ends, you are allowed to make the partial withdrawals from your corpus. For modern ULIPs, the lock-in period was raised from three to five years by the Insurance Regulatory and Development Authority of India in 2010. However, you must understand that although ULIPs have a 5-year lock-in period, they are long-term investment plans, and to maximize your returns, you are advised not to make frequent withdrawals.

Are ULIPs the same as mutual funds?

Many people mistake ULIPs for being the same as mutual funds. First, you must realize that ULIPs combine the benefits of investing in market-linked instruments and life insurance, while mutual funds are pure investment plans. Both have their advantages and would be a worthy addition to any portfolio. It is important that you have a clear understanding of your goals to choose where you want to invest. For example, if you want financial security for your family, long-term wealth creation, flexibility in asset allocation, and tax benefits, ULIPs are the way to go. On the other hand, you should choose mutual funds if you have a higher risk appetite and are looking for higher financial gains.

Who is the Ideal Investor for a ULIP?

As far as being a popular investment plan goes, ULIPs are sought after by a variety of investors in India. These investors can be classified as follows:

Investors who prefer flexibility

The flexibility of ULIP lends mobility to your invested amount between a pool of diverse funds with varying risk-return profiles. ULIP insurance is also a good option if you enjoy keeping an eye on your money. It preserves transparency by allowing policyholders to scrutinize their assets. For those who do not want to stay vigilant about their investment plans, there is a fund management option wherein the insurance firm manages the investment of the accumulated corpus per market performance.

Investors with a long investment horizon

Invest in ULIPs if you are the sort of investor who can wait for a longer period in exchange for higher profits. This is because ULIPs are at their most rewarding in the long run. A long investment horizon ensures a higher corpus amount as you benefit from the power of compounding, as well as mitigate any market risks that can affect the funds in the short term. You can also maximize your ULIP returns in the long run by using the fund switching feature to make sure that your investments are always directed towards the right type of funds.

Investors of different age groups

The versatility of ULIPs makes them fit to be tailored to each age group's different needs and preferences. So depending on the stage of your life, you can pick a suitable policy. If you are a young professional, then a ULIP plan can serve as a good option for long-term wealth creation, and the accumulated corpus can be utilized for the fulfillment of a host of life goals. If you are in your 30s or 40s, you can start investing in ULIPs to accumulate funds for your retirement, or your child’s education.

Investors with varied risk appetites

In the investment component of a ULIP plan, there is a diverse pool of fund options to choose from, and companies like Edelweiss Tokio Life Insurance offer as many as seven fund options with varying degrees of risk. Therefore, as per your risk tolerance, you can choose an appropriate fund. For example, if you have a higher risk tolerance, equity funds would be suitable for you as they carry higher risk, but also have the potential for the highest returns. If you have a lower risk tolerance, debt or balanced funds would be the right choice for you.

What are the Reasons to Invest in a ULIP?

ULIPs have the following benefits:

1. They are prevalent financial instruments for achieving long-term objectives

A ULIP is a long-term investment plan, as mentioned above. When it comes to building market-linked wealth and creating a sizeable corpus, a ULIP utilizes the power of compounding—basically reinvesting your profits to produce more significant returns.

Additionally, you can lessen the effects of market volatility and get greater, more consistent returns by staying invested for a long time. This makes ULIPs a good choice for achieving long-term objectives like buying your own home or seeing your child get married.

2. They offer complete freedom of choice

The main features of unit-linked insurance plans are total customization and unrestricted choice. For example, you can choose the tenure and death benefit amount from the available options and decide how much money to invest and what kinds of funds to use.

Consider investing in equity funds if you're a young investor with a high tolerance for risk. However, if you're an elderly investor with a limited tolerance for risk, you can decide to put your money into debt or balanced funds instead.

3. They allow switching of funds

The ability to switch funds at any time throughout the plan's tenure is another critical factor in why ULIPs are popular among Indian investors. For example, let's assume you decided to invest in equity funds when you bought the plan.

If your risk tolerance changes or the market underperforms after a few years, you can easily choose to move to debt funds. You can also ask to move from debt to equity again if you want to maximize your returns when the market is performing well.

4. They offer tax advantages.

In India, a conventional ULIP provides several tax advantages. For instance, up to Rs. 1.5 lakh per year in premium payments made towards the plan may be deducted from your income under the guidelines of Section 80C of the Income Tax Act of 1961. Additionally, Section 10(10D) of the Income Tax Act of 1961 exempts the maturity/death benefits received through the plan from taxation. These deductions and exemptions are contingent upon meeting the requirements outlined in the said Act. However, as per the latest tax regime, gains on ULIP insurance issued on or after 1 February 2021 with annual premiums of Rs. 2.50 lakhs or more are treated as capital gains and are subject to applicable taxation.

5. They provide a top-up option.

And finally, one of the numerous reasons why unit-linked insurance plans are so well-liked in India is due to their variety and flexibility. For instance, you can choose to top up your ULIP by paying a lump sum additional premium if you have any extra unused cash on hand or have just earned any windfall gains. This extra premium payment is used to raise the fund's worth, which increases the likelihood that it will produce higher returns.

Conclusion

A Unit-Linked Insurance Plan provides the policyholder with a host of advantages. Therefore, it makes sense that it is highly sought after in India. Modern ULIPs like the Edelweiss Tokio Life - Wealth Secure+ are affordable, have unlimited fund switches, and provide the unique option of a systematic withdrawal plan that can turn out to be useful in your retirement. You can tailor the plan as per your goals and add a comprehensive investment plan in your portfolio. Go to their website and discover this new age ULIP today!