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ULIPs stand out in the financial market due to their dual benefits. They provide not just life insurance but also the opportunity to invest in a variety of market-linked assets. This distinguishing characteristic makes ULIPs particularly appealing as they offer both protection and growth, responding to various risk appetites and financial goals. ULIPs can be an appealing option for comprehensive financial planning due to their ability to generate returns while also providing life insurance.
Reasons to consider including ULIP in your financial portfolio
Dual benefits
ULIP plans to integrate financial investment with life insurance coverage. The dual aspect, in this case, implies that you pay a premium to secure a life cover while the other part is invested in market-associated instruments. This integration gives you an opportunity to avail market gains while at the same time making sure that your loved ones have financial security in the event of unexpected events.
Flexibility in investment
ULIPs give you an opportunity to invest in different fund types, which can be selected depending on your risk tolerance level and financial goals. These are mostly equity funds for high risk and high returns, debt funds for stable and lower returns, and hybrid funds that strike a balance between risk and return. This flexibility makes it possible to adjust your investments to market changes and your own preferences.
Tax benefits
ULIPs are efficient tax-saving options. The premiums paid are deductible under Section 80C of the Income Tax Act for a limit of up to Rs. 1.5 lakh per annum. Moreover, the maturity or death proceeds are tax-free under Section 10(10D) if the premium does not exceed 10% of the sum assured.
Long-term savings
Due to a statutory lock-in period of five years, ULIPs help to develop the habit of disciplined long-term savings. This lock-in period contributes to the formation of a financial habit and serves as a means of allowing your investment to compound and accumulate, creating a sizeable corpus to cater to your future requirements.
Transparency
ULIPs are known for their transparency regarding the allocation of your funds. Providers should disclose where your funds are invested, the charges applicable (including administrative and fund management fees), and any other relevant financial factors that will ensure you have clear visibility and control over where your funds are invested.
Adjustable coverage
As your life circumstances evolve, ULIPs provide the ability to adjust the amount covered. You may go for additional or lower coverage to reflect the current financial status of yours, which may be useful in events like marriage, parenthood or change in financial liabilities.
Liquidity after lock-in
After the completion of the lock-in period of five years, ULIPs allow liquidity through partial withdrawals. Using the partial withdrawal option, you can withdraw specific funds in the case of financial emergencies or unforeseen expenses and add flexibility to your finances when needed.
Top-up facility
With ULIPs, you can invest additional funds that come to your hand through top-up premiums which are above and beyond your regular premium. This, in a way, not only increases your investment in the same policy but also might improve the policy benefits and the sum assured.
Switching options
ULIPs provide the facility to switch between different fund options without incurring tax liabilities. This can be crucial in managing investments according to shifts in market dynamics or changes in your risk appetite, helping optimise returns.
Goal-based savings
Achieving specific financial goals like your child’s education, buying a house, or retirement planning is possible with ULIPs by tailoring them for targeted saving. This feature enables you to set your milestones and attain them one step at a time.
Fund choices
To suit various investment profiles, ULIPs offer an extensive range of fund choices from conservative debt funds to volatile equity funds. You can choose from such fund options or modify according to your risk tolerance level and investment objectives, thus tailoring investment portfolio as per your needs.
Market-linked growth
ULIPs provide this privilege of the market-linked returns, which endow the possibility of generating higher returns than the returns offered by the traditional life insurance plans. This makes them a wonderful choice for those who want to take advantage of equity markets but still want to have something to fall back on.
Rider options
You may increase your insurance coverage under ULIP by purchasing extra riders such as accidental death, critical sickness, and disability. These riders give additional insurance for particular scenarios, strengthening your financial safety net.
Wealth creation
Over time, the strength of compounding in ULIPs, along with the possibility of market-linked gains, contribute considerably to wealth growth. This characteristic is critical in establishing a significant financial foundation for the future.
Estate planning
ULIPs, as a type of life insurance, are essential for estate planning. They ensure that your heirs have financial stability and assistance after your death, and the policy proceeds are usually devoid of legal complications for the nominees.
Ending note
Including a ULIP in your financial portfolio not only gives a comprehensive approach to wealth management but also aligns with various financial objectives at different stages of life. Whether you want to protect your family’s future, prepare for long-term goals, or enhance investment returns, ULIPs offer a methodical and adaptable approach to financial stability. Given their advantages and versatility, ULIPs should be incorporated into your overall financial planning strategy. Why so? This is because ULIPs provide both protection and growth characteristics, putting you on the path to a more secure financial future.