ULIP or unit-linked insurance plan is an investment tool where a portion of your premium is allocated to the insurance cover while the remaining is invested in debt/equity funds based on the policy holder's choice. One can choose from various plans where fund allocation varies from debt and equity.
- ULIPs have flexible investment options – A ULIP policyholder can pick to invest in equity, options, or debt or in a mixture of both, depending on their risk appetite. An individual who doesn't want risk can invest in mutual funds, while one who doesn't mind high risk can invest in equity funds.
- No transaction charges in new ULIP – ULIPs are a smart and safe way to start investing. Though old policies come with various transaction charges like premium allocation, fund management, and mortality change, the new policies eliminate these charges after a few years.
- ULIPs are tax-deductible – ULIPs are tax-deductible under section 80C of the income tax act 1961, which means that a premium of up to 1 lakh is free from tax for the investor. This makes the ULIP plans attractive for first-time investors. Further, when the ULIP matures, the final amount is tax-deductible under section 10 of the income tax act 1961.
- Lock-in period in ULIP – ULIP plan comes with a lock-in period of about five years which means that an investor needs to keep on adding the money in the policy for five years. This lock-in period encourages the investors to save with discipline and build their savings. Once the lock-in period is over, an investor can withdraw part of his money as and when he wants, or he can also discontinue the plan.
- ULIPs are great for long-term investments – ULIPs are the most popular long-term investment plans, even if there are transaction charges. The plan needs you to make regular payments and teach you to become disciplined while increasing your profit. Additionally, the lock-in period encourages the investors to keep their money in the market and exit with high returns. Also, ULIP allows the investors to pick their assets which diversify the portfolio and thus reduce the risk.
- Variety of premium payment options – ULIPs are flexible; they allow the investors to make premium payment as he wants. You can choose a single premium plan where full investment is paid in a lump sum or a regular premium plan where you can deposit a fixed amount for the duration of the ULIP. There is also a limited premium plan where the premium amount is paid for a certain number of years.
A ULIP is a great long-term saving plan for people in their 30s and 40s. They are simple to use and offer flexible options for risks. Investors prefer ULIP because they believe that ULIP teaches them to save money. It also helps in generating good returns that are helpful for the individuals to attain their goal of financial freedom.
