Introduction:
Amruta, a software engineer, lived in Bangalore, one of the costliest cities of India. She lived with her husband and two kids. Both the parents were working and tried to make the living affordable. But they were pretty worried about their kids’ future. So the couple discussed and found on several platforms about the ways they could save money. The alternatives to save money could cost them a portion of their salary, but it was worth the investment considering the returns. Amruta, after research, decided to buy a Unit Linked Insurance Plan after reading the benefits of ULIP. She knew that the earnings from ULIP were a better option to pick. On the contrary, her husband decided to buy a term plan.
The family was set, and the planning was perfect.
Isn’t this a typical scenario of a large population in India?
The pandemic wave has already shrunk the spending power, especially of the middle-class families in India. People onlook the bleak future, which is uncertain, posing a challenge of life and survival. This has pushed people to think and plan their futures.
Investments are no longer a choice; it is an essential task to control unexpected or planned events in life. First, let us analyze in-depth ULIP advantages, but before that, is it necessary to understand what is a ULIP?
Page Contents
What is a ULIP?
Ulip plan– Unit Linked Insurance Policies Plans are instruments of financial investments that provide you with an option to create wealth and get a life insurance cover. The premium extended towards ULIP is divided into parts. A portion of it is charged as a life insurance premium, and another bit goes to a shared pool or fund. Further, the investment is made into either equity or debt funds.
ULIPs are linked to market performances, which entails with it the risk of fluctuation of returns. However, the best part with ULIP is that the investment maker can choose to put in their money according to their preferences.
If you feel less confident about making investments, you must study the past performance of the funds. Depending on the efficiency of the fund, you can then put your money.
Considering the present scenario, it is only ULIP and Term Plan that fetches the significant attention of the people willing to invest. Well, here we will see the benefits of ULIPs and how they can help you save money and get insurance cover.
Top 5 Benefits that ULIPs offer.
Unit Linked Insurance Plan, as discussed before, are market-linked plans that help you create financial savings for the long run. The tenure of ULIPs is long, during which you pay a premium. With every instalment paid, you are shedding a fixed amount towards the life cover and the rest for the investment in funds.
If this makes sense to you, the benefits of ULIP will excite you more. Let us look at the top 5 benefits that ULIPs offer:
1. Tax Benefits:
a. ULIPs offer you tax benefits under sections 80 C and 80 CCC for the amount of premium you pay in a year. The deduction limit as per Income Tax Act 1961 is set to Rs.1,50,000 maximum, which means that you will be liable to tax deductions only up to this amount. But it does not mean that you cannot or must not invest any amount above this.
b. Apart from the entry point, you are eligible to receive tax benefits on all returns on investments. The income you generate is free from taxes.
c. ULIP allows you to switch investments between equity or debt funds which are entirely tax-free. The long term investment policies give you a handsome amount of maturity. The maturity benefit is tax-free under section 10 (10D) of Income Tax.
2. ULIPs allows you to make informed decisions:
a. ULIPs is the financial tool that allows investors to make investment decisions. Every bit of information is kept transparent, enabling the individuals to make a choice.
b. ULIPs are linked to the market and driven by the risks associated. Hence, you exactly are aware of premium usage and policy changes. You also know about the possible returns based on the Sum Assured chosen and premium.
c. It is a common practice that before buying anything from the market, you tend to research it. The same is the case with ULIPs. Better is that you understand the ULIP plan after reading the product in detail. Read about the complete product in fact and be aware of the critical features.
d. Every buyer of ULIP gets a 15-day free- lookup period. It is the time when you can cancel the policy if you want. Once you file for the cancellation, you will receive the premium amount paid after the deduction of the handling charges.
e. With ULIPs, you can monitor the performance of your policy regularly. The fund owner companies issue the Net Asset Value daily. You must keep an eye on its fluctuation. Evaluating the increase or decrease helps you decide whether or not you should continue with the fund. Every insurance company provides the details of their selected funds on their website. You can refer to the information for regular updates.
3. Get liquidity when you want it:
a. ULIPs come with a 5 year lock-in period. These policies provide you with an option to surrender the ULIP whenever you want. But if you exit the policy within the lock-in period, the life cover under the policy ceases immediately. The premium you paid will be returned to you without much appreciation in the value. The refund amount will face the effect of deduction of administrative charges, fund management, fund allocation charges, policy management charges, and others.
b. On the other hand, if you surrender the policy after the lock-in period, you will get the premium after possible deductions. The liquidity can be achieved by redeeming the units in which you had invested the portion of the premium.
c. Individuals can surrender the policy before the maturity period, but that goes on a loss.
d. You can also file for loans against the policy, but that approval amount depends on the policy type. If the policy is for a longer duration and a higher sum assured or fund value, the loan approval gets easier.
4. Long term goal based disciplined savings:
Determination can fetch you results that you plan and work for. ULIPs should be that goal for you in which you can put in money regularly. It allows you to make a massive corpus for all your future requirements.
Life comes with its own complications at different stages. Those who live with family face the heat of family necessities. For example, Amruta and her husband could foresee needing a pretty handsome amount of money for their kid’s education. This is why they decided to put aside a portion of their salaries under different tools. ULIP is a long term systematic investment tool that helps you build a massive collection of money or your long-term goals.
5. ULIPs offer flexibility in investment:
a. Under ULIP investments, you get the flexibility to choose from the range of equity, debt, and balanced funds. This helps you to invest your money depending on your risk tolerance and expectation of returns. If you are looking for maximum returns, you can move your money between different funds.
b. Though you get to increase the Sum assured at the beginning of the policy every year, some ULIPs allow you to increase the Sum assured over some time.
c. Under ULIPs, you can also top up the investment over and above the premium. For example, if you receive your bonus or any money in bulk, you can put that in your ULIP fund to maximize the return.
d. A few companies allow you to choose from the riders to expand the limit of coverage under the plan. You can quickly increase the life cover amount by opting for the rider. When you enhance the existing policy with a rider, you are, in a way, improving the coverage of the ULIP plan.
If ULIP has to offer several benefits, who all should invest their money in it?
Who should invest in ULIP?
Here is the category of people who should invest their income portions in ULIPs:
- ULIP insurance plan is for those who have long-term goals and who can invest for an extended period. Considering our country, masses with a definite source of income who wish to save money for their future plans should buy ULIP.
- This product, like other insurance plans, is not sold on any gender bias. The earning or the non-earning members of the family must buy a ULIP, depending on their goals. ULIP is an investment product that helps you in creating financial security for yourself.
- Women should invest their money in ULIPs because this is a tool that facilitates people to achieve their future financial goals. ULIPs promote the habit of saving. The investment is of consistent nature, and this makes you more disciplined towards your targets. Women should save for unexpected times in the future that can leave them devastated. These life circumstances include divorce, the demise of a husband, single parenting, etc.
- Those who look for savings of income tax must buy ULIP plans. The provisions under sections like 80 C,80 CCC and 10(10D) are explained and discussed above. But investing in ULIP can help you save tax deductions up to Rs.1,50,000/-.
- If you want higher growth potential, then consider buying a ULIP. This product gives you a chance to invest in the capital markets. It further helps you to save money faster and fulfil your financial dreams as quickly as possible.
How can you make more benefits from your ULIP?
Amruta found out that investing in ULIP would turn out to be beneficial for her family in the long run. She took a policy to support a premium of Rs.80,000 every year for 15 years. After paying the premium for a few years and checking ULIP advantages she could bag, Amruta thought of maximizing more returns.
She found out and did what was needed. If you want to know how Amruta earned more returns, here are the tips:
- Align your investment with the long-term goals: The intent to start investing money in ULIP is to make a considerable volume of savings. You may need the money for your child’s education, their marriage or maybe for your retirement. Depending on your requirement, you must think about how much money you can put at risk. For example, if you are saving for your child’s education, you must initially build a corpus and then switch from equities to debt.
- Invest Consistently. Make ULIP the discipline of your life: One principle secret of success is consistency. In the case of ULIPs, you must regularly invest if you are looking for higher returns. The best part with ULIP that forms your investment habit is that it comes with a lock-in period. This is the binding duration after which you automatically get wired to pay a premium. Many insurance companies pay for the loyalty benefits once you complete the ULIP tenure. They can pay you back policy administration charges, surrender charges, fund management, and mortality charges. Companies like Aditya Birla Life Insurance states that individuals should not bother about these charges as the number of returns is magnificent. Also, the return amount could help you recover the initial cost of purchase.
- Optimize asset allocation: The best way to maximize returns is to spread the risk across different asset classes. If you can wisely allocate the assets, then you can evaluate the risk of returns. It also enables you to save yourself from witnessing heavy losses. For example, if you aim for regular income when you grow old or think you will need money when your child grows, you must invest in debt funds more because these are fixed income instruments. Debt funds are low cost, yield relatively stable returns, and are considered reasonably safe.
- Choose between the debt and the equity funds: Keep in mind your expectations from the money you want to invest. Both debt and equity funds have their individual characteristics. Equity schemes are for those who look for higher returns in the long term. On the other hand, debt funds are for those who are less willing to face the risk of investments. These people fall into the category of medium-term investors.
After reading the ways to maximize returns, let us now see which companies you can buy a ULIP plan from?
Top 5 ULIP plans for you to consider in 2021.
Here are the top companies that sell popular ULIP plans:
- Aditya Birla Sun Life Insurance(ABSLI) Wealth Infinia Plan.
- Aditya Birla Sun Life Insurance(ABSLI) Wealth Aspire Plan.
- HDFC Life Capital Guarantee Solution.
- ICICI Prudential Life Signature.
- Max Life Online Savings Plan.
It is your money, and hence it becomes your responsibility to spend and save it mindfully. No one else will be able to guide you in selecting the insurance plan. The idle way to choose a ULIP plan is to:
- Decide your goals.
- Choose premium paying capacity.
- Think about your risk absorption ability.
- Compare the plans.
- Know about the fund value before you make investment decisions.
Conclusion:
Unit Linked Insurance plans are safe investment options that allow you to put your money safely. It is a financial tool that gives you the convenience to create wealth over some time. The only trick in ULIPs to maximize returns is to go steady and switch between the funds. Savings and investments are the only two ways with which you can secure your future.
Author Bio
Well covered and explained. Informative for people