What is a unit-linked insurance plan (ULIP)? It is an insurance cum market-linked investment plan. When you invest in it, a portion of your premium is paid for a life cover to secure the future of your family in your absence. The remaining is invested in various funds of your choice to build a significant corpus to achieve long-term life goals. Thus, you get dual benefits in a single plan. Here is all you need to know about how a ULIP plan works and the benefits of investing in it.
How Does a ULIP Work?
As already discussed, ULIP offers dual advantages of insurance and investment. Under the component of life insurance, you can choose a nominee. In the event of your unfortunate demise during the policy term, the nominee can receive the death benefit. It is equal to the sum assured under the life cover. This lump-sum payout can help secure the future of your financial dependents, especially if you were the sole breadwinner in the family. On the other hand, if you outlive the policy tenure, you can get the maturity amount of the ULIP plan. This amount can finance your expenses when you're no longer earning.
Under the other component of the plan, you can invest a suitable amount as per the type of lifestyle you wish to provide to your family, your financial goals, investment appetite and risk profile. After factoring in these things, you can choose and switch between suitable funds to invest in and earn returns to meet your financial objectives.
Benefits of Investing in a ULIP Plan
Flexible investment
- Redirection of premiums
To gain higher returns from your investment, you can consider redirecting your future premium payments to this component of the plan.
- Switching between funds
Depending on your risk and investment appetite, you can switch between different funds offered in a ULIP. You can choose from balanced funds, high-risk equities and low-risk debt funds.
- Top-up
This option allows you to invest any unexpected gains in your current plan to get more financial benefits.
Financial Protection
A ULIP plan offers life coverage to the nominee in the form of a death benefit to financially protect your loved ones when you're not around.
Tax Benefits
You can enjoy tax savings under the Income Tax Act of India, Section 80C. Premiums of up to ₹1,50,000 paid towards the plan qualify for exemption from your taxable income. Besides, since the plan is also an insurance product, you can get tax benefits for the same. These benefits are subject to change as they depend on prevailing tax laws.
Growth Potential
As you stay invested in debt and equity funds through ULIP investment in the long term, this can help you meet your various financial goals. These can be supporting your children's higher studies and marriage, buying a car or dream home, planning your retirement, and more.
Make sure to start investing early to get maximum time to generate a large corpus to meet your long-term goals apart from financially protecting your family.
