Insurance products provide us the necessary financial cover in life but over the years it has also made the journey to being seen as a wealth creation product. And at the forefront of it is Unit Linked Insurance Plans (ULIPs). With a potential of heavy returns, ULIPs not only provides life cover, tax benefits but allows the insured to match his or her long-term goals by putting a part of investment into funds that are based on equity.
ULIPs could even be a better a option and certainly a more risk-free option than mutual funds to create wealth. Even experts recommend the same. In an interview Casparus Kromhout, MD and CEO, Shriram Life Insurance explained the benefits and features of the products to Nirmala Konjengbam.
All investment options need to be considered with the purpose or need fulfilled for the customers. ULIPs are unique products that combine two strong financial needs – life protection and investments. The products have a higher likelihood of gathering better investment returns over a longer term for the customer due to the equity exposure but come with the added market risks.
ULIPs offer a range of investment options to choose from based on one’s risk appetite. With ULIPs, a customer does not need to participate in the market directly to get the benefit of market linked returns. Fund managers track the investments made under ULIPs to deliver balanced returns. The customer has financial control too, which can be exercised through options like fund switch and premium redirection.
With options like partial withdrawal, customer can access money when needed and with options like top-up, park windfall gains. The charge structure and expected returns are shared before policy purchase and with the account statements and daily NAV reporting, the customer is always aware of the status of the investment portfolio
In comparison to mutual funds, non-participating plans and participating plans as well as ULIP plans have a tax advantage of up to Rs. 1.5 lakh under Section 80C and are also not liable to “long term capital gains tax” (if applicable under Sec 10(10D)) unlike mutual funds and some other savings instruments. This is an important factor to consider, especially for long term investments where taxes can make a considerable dent in the planned returns.
ULIPs have the advantage of life cover and tax benefits over mutual funds. They offer greater transparency, liquidity, flexibility and control to the customer compared to traditional saving instruments like term deposits, PPF and traditional insurance plans.