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In simple words, Unit Linked Insurance Plan (ULIP) is a type of life insurance that offers dual benefits of insurance protection and wealth building. When you buy ULIP, like the standard insurance plan, you pay the premium periodically till the end of the policy tenure. However, the only difference is, in ULIP, the insurance company uses a part of the premium to invest in different assets of your choice and uses the rest to provide financial protection against uncertainties.
Another important aspect of ULIP is that it is categorised as a long-term financial instrument as it comes with a lock-in period of five years. If you are wondering if it is worth investing in ULIP for long-term savings, then here are five reasons why it is advisable to have ULIP in your portfolio.
- Insurance-cum-investment
One of the key aspects of ULIP that separates it from other life insurance policies is that it caters to the two critical aspects of a good financial plan – securing family’s financial future and regular savings. So, when you purchase a ULIP, the insurance aspect ensures your family is always financially protected. The investment aspect lets you be disciplined with savings, as you must pay the premium regularly. Thus, you stay committed to long-term goals and grow your savings.
- Flexibility to customise the plan to suit your needs
When you buy a ULIP policy, you must specify the premium payment term, the policy duration, the sum assured, and the annual premium. The premium is the amount you pay the insurer, and it’s allocated towards investment and savings. The premium payment is the number of years for which you pay the premium. It could be for the entire policy duration or shorter.
The policy duration is the actual policy tenure for which your money will stay invested. With such amazing flexibility to choose different aspects of the policy, you can customise the plan to suit your long-term savings goals and priorities.
- Inculcates investment discipline
Just as the adage goes, ‘Rome was not built in a day,’ you cannot accumulate wealth in a day. For this, you must have a long-term savings strategy. One such effective means is ULIP. The five-year lock-in period in ULIP allows you to continue investing in the ULIP fund. In addition, you cannot withdraw the funds before the lock-in period ends.
ULIPs invest in different market-linked instruments like debt and equity mutual funds, which can be volatile in short-term, but deliver valuable returns in the long run. So, it helps you stay disciplined with your investment and accomplish your savings goals.
- Provides market-linked returns
If you start investing in ULIP from an early age, then you will have a longer investment duration, and you can afford to invest a major portion of the amount in equity funds. These funds generate higher market-linked returns than any other asset in the long run, which means you can accumulate a large corpus for the future.
- Ability to switch investments in different funds
When you buy ULIP, the insurance companies allow you to define the percentage of investment in different asset classes to suit your risk-taking capacity and long-term savings goals. However, over a period, your financial condition, your savings goals, and your risk-taking ability may change. Therefore, ULIPs allow you to switch your investment from one fund to another accordingly.
Most insurers allow a specific number of free switches in a year. Post that, you may have to pay fund transfer charges. Thus, by switching funds and changing the percentage of fund allocation, you can stay on course to achieve your savings goals.
Final Word
Thus, ULIP is an excellent investment option for long-term savings.
