Wealth creation is primarily about accumulating money and providing a secure future for your family. Having a large corpus enables you to accomplish your life goals. Similarly, your dependent family members must not suffer in your absence. If you are looking for one such financial product that is a blend of investment and insurance, ulip is the answer. So, let’s dig a little deeper and find out what is a ulip policy.
What Is a Ulip Plan?
A unit-linked insurance plan is a comprehensive financial instrument that accomplishes two important goals: investment and life insurance. ULIPs are broadly classified based on investment strategy as follows:
- Equity-Based ULIPs
These ULIPs invest the premium primarily in high-risk equities and stocks. These are appropriate for risk-taking individuals because the ulip returns are market-based. However, in this case, because the risk is high, so are the rewards.
- Balanced Based ULIPs
This is the most reliable investment approach, with the premium split between high-risk equities and low-risk debt markets. The goal here is to strike a balance between the two and reduce the risk element.
- Debt Based ULIPs
The premium in these are invested in debt instruments like corporate bonds, government securities, fixed-income products and the likes. Here, the risk is less, and so are the returns.
The best ulip plans in India will help you build a formidable corpus over time through continuous and systematic investment. This is useful in achieving life goals such as children’s education/marriage, retirement fund, and more.
What Are the Benefits of a ULIP policy?
The significant advantages of it are:
- Freedom to pick your life cover
Ulip allows you to choose the amount of life insurance you want. The minimum life coverage available is typically ten times of your annual premium amount.
- You can choose your investment strategy
ULIPs enable you to put money in a range of funds based on your investment objectives and risk tolerance. You can also switch your money between debt and equity funds.
- Tax benefits
Under section 80C of the IT Act, investments in the policy are entitled to tax deductions up to a ceiling of Rs 1.5 lakhs. In addition, returns are tax-free as per Section 10(10D) of the IT Act.
- High liquidity
Partial withdrawal of funds from the policy is possible. This enables you to take care of any immediate fund requirement. In addition, a partial withdrawal facility is available with the ulip plan. This allows you to meet any short-term financial requirement.
How ULIPs Work?
When you purchase an ulip, the insurer allocates a certain amount of the premium to your insurance coverage. The remaining amount is placed in equity, debt, or balanced funds. Thus, it enables you to switch portfolios between equity and debt based on your appetite for risk and market performance. The flexibility to shift play a significant role in the popularity of such financial instruments.
Lock-in Period of ULIP
A ulip policy has a five-year lock-in period. If you try to withdraw money from your plan, you will be penalized. However, after the statutory lock-in period, there are no charges. It is critical to understand that ulip is a long-term financial instrument that will assist you in building wealth over time. It is therefore advised to wait at least 15 years for optimal benefit.
If you understand the meaning and benefits of an ulip plan, you can look at the many options on the market. You may easily buy it online after carefully reviewing the contents.