The most frequently asked question that an investment guide face is “What is ULIP?” ULIP is a type of insurance plan in which the investment risks are borne by the policyholder within an investment portfolio. ULIP plans provide double benefits for the policy holder considering the advantages of life insurance and wealth development through investment. ULIP plans work by dividing the premium paid by policyholder into two parts one of which is utilised to provide insurance coverage and the other part used as an investment in market products. The different aspects of ULIP plans such as features, benefits and types are explored below.
What is ULIP?
The term ULIP refers to a unit-link insurance plan that provides the benefits of both an insurance policy and an investment plan. The small part of the premium amount paid by the policyholder in ULIP is utilised for providing Life Insurance benefits while the remaining part of the premium is utilised to invest in market-related products such as bonds, debts, shares, etc. ULIP is designed carefully to fulfil the long-term financial needs of individuals and help them to provide financial security for the future in unfortunate times such as the death of an earner or guardian. It is important to understand that investments made in ULIP are subjected to market risk and require proper attention.
Features of ULIP–
Tax benefits: The Government of India provides tax detection and tax saving benefits for the investment in ULIPs under the Income Tax Act 1961. The premium amount paid by the policyholder in ULIP is eligible for tax deduction. Tax benefits help people to invest more in ULIPs and secure a better future.
Flexibility: The ULIP provides flexibility in selecting and switching between different types of investment funds based on the emerging financial needs and goals of individuals. The policyholder has the complete right to make decisions regarding the selection of funds for investment along with selecting premium amounts.
Financial planning: ULIP is designed to help policyholders achieve their financial objectives by efficiently investing in market products while insurance benefits remain intact. It helps in increasing wealth by efficiently analysing financial goals and needs, preparing for future emergencies and planning for retirement.
Loyalty additions: Loyalty additions are one of the alluring features of ULIPs that offer better Returns for being part of policies for a longer duration. Loyalty additions are extra benefits provided by insurance providers as a reward at specific intervals for staying invested in the policies over time.
Benefits of ULIP–
Life coverage: ULIP provides complete life coverage as any other life insurance policy by providing financial support to the family or beneficiaries after the demise of the policyholder. It provides stress-free life for family members towards financial obligation in the absence of the main earner.
Liquidity: Partial withdrawal is an impressive and significant feature of ULIP plans that offers liquidity. Unlike other investment options, ULIP provides an impressive level of liquidity for policyholders to manage unforeseen future events and emergencies without taking loans on high interest from other sources.
Fund switch: ULIP provides complete assistance and flexibility of financial strategy by allowing policyholders to switch between different options of funds multiple times throughout the policy duration.
Wealth Booster: ULIP allows the policyholder to select from a wide range of schemes considering their different needs and financial goals. Policyholders can select any type of fund and scheme offered by insurance providers based on their savings insurance needs financial goals and expected growth.
Types of ULIP Funds–
Debt Funds
Debt funds also known as income funds and bonds are a type of ULIP investment which primarily focuses on fixed types of instruments such as Government Bonds corporate bonds and security. These ULIP funds have a medium risk and offer rewards between 20% to 70% based on equity exposure.
Liquidity Funds
It is a low-risk fund of ULIP which also refer as cash funds in the money market. Liquidity funds are focused on short-term market products such as treasury bills bank deposits and commercial papers. The benefits of liquidity funds are moderate but they provide secured Returns suitable for low-risk appetite.
Balanced Funds
It is a type of ULIP that invests a part of the premium money in both bonds and stocks. Balance funds work to provide a balance between income and growth by investing in both types of market instruments. It is one of the most stable and preferable types of ULIP that works systematically for wealth creation.
Large and mid-cap equity funds
These are the types of ULIPs that invest in the top 200 large and medium-sized companies in India. Large and Mid-Cap equity funds hold a high risk of investment which focuses on fund appreciation. This type of ULIP finds is suitable for investors with high-risk tolerances and large investment goals.
How to buy ULIP: The best Investment Plan
- To select the best ULIP, individuals should consider the following points-
- To enjoy the complete benefits of ULIP with health and death benefits and investment opportunities, it is essential to select a reputed insurance company.
- It is important to determine personal goals to buy the best investment plan and select the appropriate ULIP fund
- It is important to opt for a sufficient amount of Life Insurance coverage
- The benefits of ULIP increase over time and it is recommended to stay invested for a longer term
- To buy ULIP, individuals need to analyse the overall charges associated with the policy to keep everything within budget.
- The best investment plan is the one that provides tax benefits, emergency coverage, claim intimation, flexible payout options and other services.
Conclusion–
To conclude, ULIPs provide wealth creation opportunities through investment options along with life coverage as an insurance policy. ULIP offers a wide range of advantages for the policy holders such as flexibility, tax benefits, life coverage, liquidity, wealth generation, loyalty additions and many more. Individuals can select any type of ULIP funds considering important points such as the reputation of the insurance provider, financial goals, sufficient benefits for emergencies, etc.
