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IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
 

ULIPs - Advantages and Disadvantages

What is a Unit Linked Insurance Plan (ULIP)?
 

ULIPs, also known as Unit Linked Insurance Plans, are a popular investment product in the country for their varied and practical features. A ULIP is a dynamic financial tool that offers the benefits of two different products – life insurance and investment. With a ULIP, you can invest in a single policy and enjoy systematic returns as in the case of any other investment. You can also secure the future of your family with a sum assured. Investing in a ULIP is a great strategy, especially if you are looking to create a corpus to meet your mid-term and long-term goals.
 

However, before making a decision about which ULIP plan is better, here are some features, pros, and cons of this tool that you must be aware of.
 

What are the various features of a ULIP?
 

Given below are the features of a ULIP:
 

  • A ULIP is a financial tool that offers investment and insurance under one plan. So, by paying a premium or making contributions, you achieve two of your goals. One is to secure your future by investing your money and reaping profitable returns, and the other is to protect your loved ones in your absence.
  • The plan does not get affected if you make early partial withdrawals.
  • A ULIP is a flexible tool that allows you to switch between different funds, such as debt, equity, or balanced funds.
  • The premium and sum assured for a ULIP can be chosen as per your investment needs.
  • A ULIP lets you track the performance of your investment and see how your money grows or reduces with the changes in the market.
  • A ULIP plan permits you to switch between funds to facilitate better returns.
  • A ULIP is an investment instrument and hence involves some degree of risk.
     
What are the pros of investing in a ULIP?
 

Here are some advantages of a ULIP:
 

  • Offers more returns: The money that you invest in a ULIP is further invested in the stock market. This increases the prospects of high returns too. Whenever the market is booming, you can earn significant money.
  • Gives benefits that are manifold: With a single policy, you can leave a legacy behind for your heirs and dependents in the form of a sum assured and secure your own future with periodic investments. This provides you with multiple paybacks.
  • Can be used as an emergency fund: One of the most useful features of a ULIP is that it lets you withdraw money in the short term. Although ULIPs are primarily seen as mid or long-term investments, they can be highly effective in the short term in case of an urgent financial need.
  • Provides you with tax* benefits: Under the ULIP tax benefits, the premiums paid can be availed as a tax* deduction up to ₹1.5 Lakh under Section 80C of the Income Tax of 1961. The death benefit paid to the nominee on the demise of the policyholder is also exempt from income tax under the same act.
  • Offers flexibility: A ULIP allows you to switch between funds multiple times to ensure that your money reaches its optimal growth.

What are the cons of investing in a ULIP?
 

Here are some disadvantages of a ULIP:
 

  • Subject to market risk: ULIPs invest your money in the stock market and are therefore highly volatile. Depending on how the market performs, your returns could either factor in a profit or a significant loss.
  • Costlier than other insurance plans: As compared to other insurance plans, such as term insurance, whole life insurance, etc. a ULIP can be more expensive. So, this may not suit someone on a budget.
  • Fixed lock-in period: The fixed lock-in period for a ULIP is 5 years. During this period, you cannot assess or withdraw your money.
     
Are ULIPs a good investment?  
 

ULIPs can be a great investment tool if you are open to some amount of risk and are saving for a long-term goal. They provide returns over a period and keep your loved ones protected at the same time.
 

Is ULIP better than FD (fixed deposit)?
 

A ULIP can be better than an FD in some respects. For instance, it provides better returns and insures you under the same plan. An FD, although a safe investment, will only provide you with a maturity benefit and not a death benefit. Moreover, the maturity amount of ULIPs is tax*-exempt, whereas the maturity amount of an FD is taxable.
 

What is the death claim payable in case of ULIP?
 

The death claim is the total of the sum assured and the accrued bonuses and returns on your investment.
 

Is it the right time to invest in ULIP?
 

It is always the right time to invest in ULIPs if your goal is to create a long-term corpus. This insurance tool is ideal for investors who are ready to enter the stock market and see their investments flourish over time while safeguarding their loved ones.
 

Final words
 

A ULIP is a carefully designed tool which can play a crucial role in financial planning. Make sure that you invest in it early in life, so that you are able to build a large pool in due time.
 

L&C/Advt/2023/Feb/0704

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimer

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
  • Past performance is not indicative of future performance.
  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
  • Please make your own independent decision after consulting your financial or other professional advisor.