Wealth creation is a desire by need and wants! People aspire to increase wealth to retire early, secure their future and lead happy retirement phases. Accumulating funds for future growth and development has become simple and easy with the advent of many financial investment products. Unit Linked Insurance Plan(ULIP) is one of the most popular options that has been helping people increase their wealth while securing their families and saving on taxes*! Here is a detail about the advantages and limitations of ULIP for your reference.
 

Before we get started, let us discuss the ULIP insurance definition.
 

What Is A ULIP Plan?
 

ULIP insurance is a comprehensive life insurance product that combines the benefits of life insurance and wealth creation. Therefore, one portion of the premium will be used for the life coverage that will provide the financial death benefit to your family in the event of your unexpected death and the portion for investing in financial securities for market-linked returns at maturity.

Understanding the advantage and limitations of the ULIP plan is essential to invest in it.

Advantages Of ULIP Plans

ULIP plans provide a range of flexible features that help you benefit from it maximally.
 

• Dual benefits - ULIP benefits differ from other wealth creation financial investments based on the dual advantage, the life coverage benefit and market-linked returns. By saving in ULIP insurance, you can secure your family in your absence and increase your wealth to accomplish all your future financial goals and settle for your retirement phase peacefully.
  
  
• Invest based on your risk profile - Insurers offer varied fund options for the different categories of investors. For example, our Tata AIA Life Insurance Plans for ULIP insurance investment provide 11 different fund options that range between equity-oriented, debt-oriented and balanced funds. You can choose the fund option based on your risk appetite. If you are the sole earning member of your family, you may not be able to afford the equity-oriented fund options. Therefore, you can opt for debt or hybrid funds to secure your investment in such scenarios.
  
  
• Switch between the ULIP funds - The ULIP insurance plans allow you to switch between the fund options based on changing family needs or market volatility. For example, you might have been investing in an equity-oriented fund option, and due to a global economic downturn, the equity fund might start losing its fund value. In such cases, you can switch to a debt-oriented ULIP fund to secure your investment. This flexibility is one of the most important ULIP plan benefits that attract many financial investors.
  
  
• Partial withdrawal - Partial withdrawal is one of the most important advantages of ULIP. The ULIP insurance has a lock-in period of 5 years, after which partial withdrawals become applicable.
  
  
• Tax* savings - Like any other life insurance plan, the premium paid in ULIP and its payouts will qualify for a tax* deduction and exemption based on your extent and type of investment.
  
  

Limitations Of ULIP Plans

A few features that turn out to be long-term benefits might be considered Limitations of ULIP plans. Here is a detail to help you understand.
 

• Five-year lock-in period - The ULIP plan has a 5 year lock-in period after which partial withdrawals become accessible. Although 5 years is a long term, it will encourage people to stay invested and, in the meantime, allow the market to get corrected in case of an economic downturn and help increase the investment fund value.
  
  
• Increased cost - There are different kinds of ULIP charges, such as premium allocation charges, fund management charges, mortality charges, etc. However, considering the ULIP benefits and the support extended by the fund managers to handle your investment and make timely switches based on your financial interests, it is certainly worth the investment.
  
  
• Not suitable for short-term needs - While the lock-in period makes ULIP unsuitable for short-term needs, it is important to mention here that investments for market-linked returns have to be in the long term for maximum benefits.
  
  
• Switches between the ULIP funds are chargeable - Switching between the different ULIP funds becomes chargeable after a certain number as prescribed by the individual insurers. However, the cost is extremely minimal considering its timely recovery benefits.
  
  
• Market volatility - Fluctuations in the financial market affect the investment fund value. However, either by staying investing for the long term or utilising the fund switch options, you can benefit from the advantages of ULIPs.
   

Having discussed the advantages and limitations of ULIPs, you must analyse your financial requirements, affordability and the policy term to decide on the ULIP fund and the period of investment. You can always contact the customer service team or the expert fund managers to make a decision and manage the fund portfolio.
 

Conclusion

Unit Linked Insurance Plan(ULIP) is a comprehensive life insurance plan that provides a life cover to safeguard your family's financial future and the option to invest in financial securities for market-linked returns at maturity. In addition, it provides flexible features such as investing based on the risk appetite and switching between the fund options during market fluctuations.

Furthermore, the investment and the payouts will qualify for a tax* deduction and exemption benefit. However, there are a few limitations of purchasing the ULIP plan, such as considering the lock-in period, market volatility, increased cost and the chargeable switches. 

L&C/Advt/2022/Oct/2425