ULIP can be defined as unit linked insurance plan. It is a combination of insurance and investment both. A policyholder pays premium either annually or monthly for the insurance. A minimal amount is paid as a premium to secure life insurance and the and the remaining amount is pooled as mutual fund.
This intelligent mix of investment and insurance works brilliantly for a steady wealth flow. The motive of building wealth with a long term insurance puts this avenue into a positive light. The investment comprises of both equity and debt for meeting long term goals. These goals could be early retirement, child education or travelling abroad.
How does it work?
ULIP as an investment plan can be a great move. The insurance part of investment is used for shares/bonds etc., and the balance amount is utilized in providing an insurance cover. Many fund managers are assigned the task to profitably deal with the investments and change funds in there’s a dip! All the tracking and evaluation goes according to the managers. ULIPs strike the wonderful balance between debt and equity depending on the risk appetite and knowledge of the market. The accompanying benefits really help to boost the spread the word!
IRDA (Insurance Regulatory and Development Authority of India) introduced ULIP in the year 2010, and then takes a lock in period of 3-5 years. The benefit will be obtainable only on a long term which may range between 10-15 years. Hence, it is important to note the following benefits to start with:
- Life cover: Firstly, the ULIPs are combined with investment. It acts like security for a taxpayer whenever contingencies namely death of the taxpayer. fall upon you.
- Income tax advantage: The premium paid for an ULIP is eligible for tax deduction under Section 80C. Infact, even the returns from the policy are exempt from tax under Section 10 (10D). The dual benefit can qualify this policy.
- Long Term Financial Goals: If you’re long term goals are still long due then it’s time that you pursue them now. Whether its buying a house or getting married, do not let go off your dreams. The money often gets compounded eventually, which in turn makes the returns bigger. This is a significant change even if you’re investing for 5 years then not investing at all. Idle money in the savings account can be futile, hence this investment pays off well. Greater benefits come with the long tenure.
- Flexibility of a portfolio: ULIPs are allowed the flexibility to switch portfolios and invest in better deals in tradeoff between equity and debt. However, dedicated insurance companies are quite fussy in that way.
Also Read: Top 5 ULIP Plans In India – MyMoneyStore