Unit-linked Insurance Plans (ULIPs) are uniquely designed to help you achieve several of your goals and fulfil multiple financial responsibilities. Apart from being a life insurance plan, ULIPs also make for an attractive investment vehicle.
However, the plan’s benefits do not end here. A ULIP offers several other benefits that make investing and insuring yourself seamless.
Let’s find out about the many benefits of a ULIP.
Benefits of investing in a ULIP
1. Financial security for your family members in your absence
A ULIP can help secure your family members through assured life coverage. In case of an unfortunate event, the nominee receives the sum assured, ensuring financial stability during difficult times.
ULIPs ensure that even if you are not around, your loved ones still have a financial cushion and are able to sustain themselves. In a way, it helps you leave behind a legacy.
2. Wealth creation and goal fulfilment
ULIPs, with their range of investment funds and different portfolio strategies, can help you achieve several financial goals. Whether you are planning for retirement, a child’s higher education, marriage or miscellaneous expenses, ULIPs can assist you in many ways. Right from investing towards a house or creating wealth to being financially independent, this single investment vehicle can be suitable for various goals. ULIPs allow you to switch from one fund to another and enable you to capitalise on market opportunities and enjoy better returns.
3. Flexibility of choice of funds
ULIPs offer three broad categories of funds - equity, debt and hybrid. Equity funds involve high risk and high return, debt funds involve low risk and low return, and hybrid funds offer a combination of both. These categories cater to different goals and risk appetites.
Moreover, ULIPs also offer plenty of choices within these categories. For instance, there are multiple equity funds, several debt funds and various hybrid funds from which you can choose. You can conduct your research, check past performance and analyse other relevant information to make an informed decision.
4. Option to add riders for enhanced financial protection
Apart from basic life coverage, ULIPs allow you to secure enhanced financial protection for your loved ones. You can safeguard them against various financial situations by adding riders to your plan. Riders offer additional financial protection in unique situations and help you overcome financial emergencies.
For instance, a disability benefit rider waives off premiums in the case of a disability, and an accidental death benefit rider offers additional financial protection in the event of the policyholder’s death in an accident.
Riders can be added to the main policy for an extra fee on top of the basic coverage. You can assess your requirements and opt for this optional protection. A ULIP calculator can be helpful to make an assessment and understand how riders may affect your premium.
5. Tax savings under the Income Tax Act, 1961
ULIPs offer several tax benefits under various sections of The Income Tax Act, 1961. The premium paid is eligible for a tax deduction subject to conditions under Section 80C. The death benefit paid to the nominee in case of an unfortunate event is also exempt under Section 10(10D) of the Income Tax Act.
ULIPs also offer maturity benefits under specified conditions. The taxation rules vary based on the combined total annual premiums if you hold multiple ULIPs issued on or after February 1, 2021. If the total annual premium for all these ULIPs is less than ₹ 2.5 lakh for all the years during their tenure, the maturity benefits from each policy are tax-free under Section 10(10D). If the total annual premium exceeds ₹ 2.5 lakh in any given year, only the policies with combined total premiums less than ₹ 2.5 lakh offer tax-free maturity benefits under Section 10(10D).
To sum it up
With a host of benefits, ULIPs stand out in a sea of financial tools. Investing in a ULIP can bring you closer to your goals and help you live with peace of mind, knowing your loved ones will be secure in your absence.
