4 Reasons Why ULIPs are Important
The uncertain global situation has highlighted the importance of insurance and investment in an individual’s life. Investments are vital to ensure a comfortable standard of living in the future, considering the increasing inflation rate. And, insurance is extremely important if you have a dependent family.
A single premium term policy might suffice for your family’s protection needs. However, if you are looking for an investment-linked insurance solution, a ULIP policy is a fair option. A Unit Linked Insurance Plan (ULIP) is a comprehensive life insurance plan that offers twin benefits of insurance and investments.
Let us now discuss what a ULIP is and four important reasons that emphasise its critical importance.
What is a ULIP policy?
A ULIP policy is a distinct life insurance plan that provides two benefits: life cover and investment benefits. Insurers utilise one portion of the premium amount you pay for the life cover and the other to invest in financial instruments for market-linked returns.
In addition, the plan also provides add-on rider# options such as accidental death benefit rider#, total and permanent disability rider#, critical illness rider#, etc.
For example, the critical illness rider# will provide the insured amount to pay for your medical expenses when you get diagnosed with a critical illness for the first time in your life. With this basic overview, let us understand the critical importance of the ULIP plan.
The Critical Importance of ULIP Plans
Investment benefits with life cover: Affordability and risk appetite are major constraints while considering market-linked investment options. You have to spend more and assume a considerable amount of risk to make reasonable returns. However, family commitments generally restrict the extent of risk you can take and the amount you can confidently invest.
With the ULIP policy, you can be assured of a life cover and market-based investments as per your risk profile. The life cover will ensure the sum assured to your nominee in case of your unexpected death during the policy term. It is a cost-effective solution for all your financial needs.
Flexibility: Flexibility is an important aspect of any financial instrument. It will help you customize the plan for your financial requirements. ULIP benefits have critical importance due to their flexible features. Here are a few to mention:
The portion of the fund invested for market-linked returns in the financial securities can be based on your risk appetite. For example, you can choose to invest in equities for high-risk investments, debt funds for low-risk investments and the hybrid fund for moderate risk investments.
You also get the option to switch between the funds based on the market volatility. For example, if an economic slowdown is expected shortly due to a government policy announcement, you can switch to a debt fund to secure your investment and ULIP returns. Tata AIA ULIP plans allow you to make such switches online through simple and easy procedures.
The plan also provides flexible premium payment options. For example, you can opt for regular pay for a longer duration, such as 15 - 20 years, a limited pay duration of about 5 - 7 years, or a single premium payment. The single premium life insurance plan is preferred by many people who seek safe and higher returns in the long term. The premium can become cheaper if you start investing early in life. The reason is that the possibility of having a pre-existing illness or any other health disorder is less at a younger age, reducing the probability of death, which is a major consideration for the insurers while calculating the premium and sum assured.
Secure and long-term benefits: Every investor considers safety as a prominent factor while choosing investment options. ULIP plans are considered safe for three reasons.
Insurers provide different combinations of funds that you can choose to invest in based on your risk tolerance level. As the funds are managed by an expert team facilitated by the insurance provider, they are extremely reliable.
By switching between the funds based on the market volatility you can safeguard from drastic losses. The plan also provides complete transparency of the fund value at definite intervals. You can either opt for the fund manager to make the necessary switches on time or let you notify of the requirement and permit you to do the fund switches.
Furthermore, ULIP has a lock-in period of five years, after which partial withdrawal is permitted. Even if the market volatility persists for a while, it corrects itself to ensure consistent returns within the five-year lock-in period. Also, it ensures you invest in the long term for higher ULIP returns.
Tax* benefits: Of late, the ULIP policy holds critical importance due to the tax* benefits that it offers. The premium amount paid towards the ULIP plan and the payouts provided as returns are applicable for the tax* deduction and tax* exemption under Section 80C and Section 10(10D) of the Income Tax Act, 1969.
The ULIP plan has critical importance in the financial investment platform for varied reasons. Firstly, it ensures dual benefits of life cover and investment options based on risk appetite. Secondly, it offers flexible options to switch between the funds based on the market volatility and price fluctuations.
Therefore, if you feel investment and insurance are critical components in your life to ensure financial security for you and your family, a ULIP policy is just the ideal choice!