What are Unit Linked Insurance Plans (ULIPs)?
Unit Linked Insurance Plans (ULIP) is a combination of insurance and investment. A policyholder can pay a monthly premium or annual premium from which a part goes to secure life insurance while the rest is invested as a mutual fund invests. It is a long-term product which assists you to to make money while you accomplish your goals.
You can go on investing till the termination of the term. A term could be half a decade, one decade or even one and half decades. There are options for investing in equity and debt fund.
How to maximize your ULIP investment returns?
1. Power of Compounding
There is a contrast between saving and investing. Investing money ensures interest added to your account for the future. If you are invested for a longer period of time in ULIP, say a decade, the power of compounding comes in the picture where your money will reinvent itself for the growth of the principal amount each year.
2. Tax Benefits
You have the Exempt, Exempt, Exempt (EEE) taxation benefit where your funds aren’t taxed from investment to make withdrawals. Various fund options are available for investors like equity funds, debt funds, and balanced funds and so on.
3. Five Years Lock-in Period
ULIP is a long-term contract so it brings in you a habit of disciplined saving. There is a lock-in period of half a decade. Investing in just one ULIP is beneficial. You can bring the policy once and avail tax benefits every year until the completion of the term.
4. Garners better returns than any other insurance due to equity advantage
ULIP invests your premium in varied asset classes through distinct funds. Funds that save tax have provided double-digit returns, but you have to search new funds each year if you have made a single time investment. The performance of the equity market during the tenure decides the maturity amount. Endowment plans pay a large amount after a certain term.
Did you know that you can switch between funds during the term? Such flexibility is offered by ULIPs. You have a variety of options including growth, equity, balanced, income funds according to your risk appetite or change in goal. In a given year, four switches are normally permitted free of cost. You also needn’t record the companies the fund is investing in. Just select the policy, change fund allocation and get long-term benefits while you sit back and watch how things go.
6. From the sixth year, you can withdraw up to 20% of investments
After five years, starting from the sixth year, you have the privilege to withdraw up to 20% funds from your investments and let the remaining investments grow! It’s not like Fixed Deposits where you cannot withdraw your money till the completion of the term.
7. Dual Benefits
Apart from tax advantage of up to Rs 1.5 Lakh under Section 80 C Income Tax Act 1961, you are offered minimum assured sum equal to 10 times annual premium for investors if you’re below 45.
8. Goal centric planning
You can invest according to your goals, especially if it is a long-term goal. Retirement planning, emergency funding, education and wedding of your siblings/children get easier.
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