The Unit Linked Insurance Plan, also termed ULIP, is an insurance product that combines the benefits of insurance and investment under a single policy. This policy acts as a saving schemes platform for future use and helps protect loved ones from unexpected times. Since its inception in 1971, ULIPs have come a long way. This blog will walk you through the best plan to help you accumulate wealth, offering insurance and how to save income tax.
How Does ULIP Work?
ULIPs are the best saving schemes that offer a combination of life insurance policies and investments. At the start, the premium paid towards ULIP is used to meet the expenses. Later, the premiums are divided into two categories; a part is used for insurance, while the remaining part is invested either in equity, debt, hybrid or others. Finally, the fund managers look for the amount that you invest. The best thing about investing in ULIP is that you can easily switch between different types of funds depending on the market conditions. This is a saving scheme that helps the investors to gain the best on the amount invested.
On surviving the maturity period, the ULIP holder will enjoy the maturity benefits and can use the amount to meet future goals. In addition, the policy even offers death benefits to the policyholder’s family in case of the sudden and unfortunate demise of the policyholder.
ULIP usually comes with a lock-in period of 5 years. However, since it combines life insurance policies and mutual funds, the long-term investment should be held for 15 years to fetch the maximum benefits.
Benefits of Investing in ULIP
Buying a ULIP plan is backed with numerous advantages. Keep scrolling through to know the details:
● Flexibility of Investment
ULIPs offer the Advantage of flexibility to the investor. They have the option to move between different saving schemes or funds with the changing market conditions with all ease. Also, you get the opportunity to withdraw a part of your money according to your needs.
By buying ULIP, you even get the option to invest additional money into the amount that is being invested or saved.
● Tax-Free Advantage
If you are wondering how to save income tax by getting a ULIP plan, then worry not. Under Section 80C of the Income Tax Act, 1961, the premium paid towards ULIP is eligible for a deduction of up to INR 1.5 lakhs. The maturity and death benefit the insured or the family member receives tax-free under Section 10(10D) of The Income Tax Act 1961. Also, the switching funds are tax-free.
● Regular Savings
The key to effective long-term financial planning is the practice of consistent, disciplined saving, which is what ULIPs encourage. In addition, you can gain profit from saving schemes for your loved ones by paying premiums on time.
● Potential for Growth
The ability of equities and debt funds has the potential to produce more significant returns. Therefore, investing in these saving schemes will assist you in achieving your life’s objectives,
including paying for your child’s further education, purchasing a new home, and a dream car, among other things.
● Long-Term Investment Benefits
In the long run, those seeking to earn maximum benefits must invest in saving cum investment schemes such as ULIPs. To get the best results, the investor must check the market volatility. Securing the investment for an extended period will make it easy to gain higher profits.
Factors that Affect ULIP Returns
Numerous factors affect the ULIP returns. Some of them are listed below:
- Investment Term
Your overall returns may be impacted by the insurance duration. Long-term investing in saving schemes may result in higher returns because the money has more time to multiply and grow.
- Investment Amount
The return on ULIP depends on the amount invested. Therefore, the higher the amount one invests in saving schemes, the better and higher the returns will be.
- Type of Fund
Equity funds carry a greater risk but are known to offer larger returns. In contrast, balanced funds can offer moderate returns and medium risk. Finally, of the three types of funds available in the market, debt funds can have the lowest returns and risk. So, the return you get on ULIP depends entirely on the fund that you choose.
- Rate of Return
The return that the policy fetches depend on the fate of the profit. The higher the return, the higher the yield on the amount invested and vice versa.
Now that you know how to save income tax while ensuring wealth accumulation along with protecting your health and your family members during unexpected incidents, when are you planning to buy one?
The ULIP calculator takes these factors into consideration. You can use the online calculator to find the return on the investment and the total maturity value. Using a ULIP calculator can help you choose the most appropriate investment amount based on future goals, budgets, time expected for investment and much more. To get the best ULIP plan, you must compare different options available in the market.
