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If you are coming from a mindset that financial management, insurance, and long-term wealth creation goals would only begin after marriage, you couldn’t be more wrong. While it is undeniable that marriage itself comes with numerous responsibilities, such as those of your spouse and children, there are a number of benefits you will be able to enjoy if you consider ULIP as your insurance cum investment plan while you are still single. In this article, we will be discussing the reasons and what makes ULIP one of the best investment plans.
Understanding ULIPs briefly:
A Unit Linked Insurance Plan is a type of financial programme that combines insurance and investing benefits. It not only provides the benefits of life insurance, but it also allows you to invest some of your assets in debt or equity, depending on your own financial goals. In other words, the plan not only ensures financial stability for your family in the event of an unforeseen event, but it also rewards you with good market returns.
ULIPs are handled by professional fund managers; therefore, no financial market skill is required. They invest your assets in a diverse range of market instruments, providing great returns.
ULIPs also include the crucial feature of fund switching, which allows you to convert your investments from debt to equity or vice versa based on the performance of the funds. Fund switching is also determined by your risk appetite, which is the amount of risk you are ready to accept in the current market environment.
According to the Insurance Regulatory and Development Authority of India (IRDAI), ULIPs have a five-year lock-in term. A defined lock-in time maintains investor discipline while still providing the benefit of capital appreciation, and during this time, you will get life insurance coverage.
Five reasons why you should invest in ULIPs while you are still single:
1. Allows you to repay the financial liabilities: It’s probable that you or your parents might have used educational loans and other forms of borrowing to pay for your education. Once you start earning, you will be able to contribute to the repayment of those taken out by your parents. A ULIP might help you meet this financial obligation with ease. On the one hand, it assures that the repayment of these loans does not place a financial burden on your parents by providing them with a death benefit due to the life insurance component in the policy in the event of your untimely death, and secondly, it helps you to get discipline about investment.
2. Provides tax benefits: If you have begun earning, you should always choose an investment option that delivers tax benefits. A ULIP can become the investment plan option at this point. Premiums for ULIPs are tax-free under Section 80C of the Income Tax Act. Furthermore, the returns you receive are tax-free under Section 10D of the Act. ULIPs are also one of the market products that are free from the Long Term Capital Gains (LTCG) tax. Choose Unit Linked Insurance Plans to get the most out of your investment.
3. Financial long-term goals: If you are a single person with a job, you must budget for future expenses. You should budget for your wedding expenses, your child’s education costs, and even retirement preparation. Instruments such as ULIPs can be especially useful for this purpose. A fundamental feature of ULIPs is that you can profit from compounding your money, which means that your gains are reinvested back into the fund to produce even more output. You can choose to exit at the end of the minimum lock-in period or reinvest your funds for another term. Over time, the profits from ULIPs will ensure that you can comfortably pay all of your future expenses.
4. Flexibility of fund switching: As a single person, you should consider ULIP as one of the best investment plans due to the flexibility it offers. If you are dissatisfied with your returns, you can transfer your investments to equities, debt, or balanced funds. Typically, you are allowed four moves every fiscal year. Furthermore, because you are in your early adulthood, your priorities are likely to change and expand with time. The ability to swap funds and divert premiums allows you to fit your ULIP investment with your changing financial objectives.
5. Higher returns with fewer charges: In comparison to other investment options such as PPF, NPS, post office time deposits, tax-saving fixed deposits, and NSC, ULIPs provide better yields of up to 12%. According to the amended IRDAI criteria, you must also pay lower premium allocation, fund management, and surrender charges.
6. ULIP Top-Up advantages: ULIP investments let the policyholder grow their investment amount above and beyond their fixed premium amount. The top-up facility allows you to put more money into your existing ULIP insurance. If the current fund is performing well, you can easily invest the excess money in the existing ULIP funds. This allows you to capitalize on the growth of your ULIP investing fund.
7. Potentially higher returns: ULIP returns outperform other insurance policies and savings schemes, and this is one of the reasons why it is one of the best investment plans. You can change your fund portfolio based on the market performance assessment. ULIPs invest money in a variety of asset classes and are managed by skilled fund managers. A ULIP plan also has a cheaper overall premium allocation, policy administration, and fund management fees.
Important Factors to Consider for a ULIP Investment
If you’re thinking about investing in ULIPs (Unit Linked Insurance Plans), here are some key aspects to consider:
- Before investing in a ULIP, you must first determine your investment objectives and risk profile.
- Understand the charges related to the plan and how they affect your ULIP returns.
- It is critical to understand how the 5-year lock-in period affects your ULIP investment horizon and liquidity demands.
- Understand the ULIP plan’s flexibility and its relevance to your financial goals.
- Examine the insurance coverage provided by the ULIP plan and its relevance to your insurance requirements.
- Before investing in a ULIP, it is critical to assess the plan’s performance history and compare it to other similar investment options.
- It is also critical to analyze your ULIP investment plan’s asset allocation strategy and investment philosophy.
Thus, ULIPs can be excellent financial options for single individuals. Before investing in ULIPs, remember to compare several schemes and choose the best.
