Rohan MathawanGreat! You are an investor who has finally decided to expand and diversify your financial portfolio, and you are looking to invest in ULIPs. Or maybe, you are a young professional looking to start your investment journey with a ULIP. Either way, this article is for you!
ULIPs, or Unit Linked Insurance Plans, can be daunting for an investor, especially if they are new to the financial market. But once you understand the nitty-gritty, of which there are a few, you will see that ULIPs are relatively simple financial products with a myriad of dimensions. Their best quality is that not all these dimensions may be relevant to you, and so you can choose to ignore the irrelevant ones. In addition, they are very flexible and highly customizable plans that can be tailored to your needs. Let’s see how.
What are ULIPs?
ULIPs are a subtype of life insurance plans that provide life insurance cover to the policyholder and, simultaneously, provide the unique opportunity of accumulating wealth from a portion of their premiums. So, they are life insurance and investment products. ULIPs are offered by most major insurance providers; they come in all shapes and sizes and can cater to many needs.
How do ULIPs work?
ULIPs work in a very similar fashion to a standalone life insurance plan. There is a policy term and a sum assured, and based on these, plus some factors like your age and health status, your premiums are determined. The premiums that you pay go towards providing your life cover as well as into market-linked mutual funds.
You can choose the mutual fund where you invest your money from a pool of 5-7 funds, made up of debt, equity, or a balance of the two. These funds have varying degrees of risk, and you can choose the one that matches your risk profile. Companies like Edelweiss Tokio Life Insurance also give you the option to take over the fund management process and carry it out on your behalf. This way, you can leverage their expertise and enjoy maximum gains.
There is a lock-in period after you purchase the policy, which is five years long. After this, you are also allowed to make partial withdrawals from your corpus. We shall see how this comes in handy in a variety of situations. Let’s dive into the various advantages of ULIPs.
Advantages of investing in ULIPs
- Life Cover: The first and foremost benefit is life cover. It allows you to fulfil your responsibility of securing the financial future of your loved ones. The life cover offered by modern ULIPs can be upto 100 years, as is the case with Wealth Secure+, a ULIP provided by Edelweiss Tokio Life.
- Good Returns: If investments are made prudently and you stay invested for a long time, the returns can be excellent. When the policy term ends, you might be looking at a sizeable corpus that you can utilize in a multitude of situations.
- Tax Benefits: The premiums paid are exempt from taxation because ULIPs are life insurance plans. You can claim an exemption to an amount of 1.5 Lacs under section 80C of the Income Tax Act, 1961. Furthermore, under section 10(10D), the sum assured is tax-free.
- Flexible: ULIPs are highly adaptable in many ways. First, in terms of investment options, ULIPs offer you a choice among a nice variety of funds. If the fund’s performance does not match expectations, you can also switch funds for no extra charge (up to a set number of switches). Second, the ULIP plans offered by companies like Edelweiss Tokio Life Insurance allows you to add beneficiaries or extend the cover to your children and spouse.
- Partial Withdrawals: After the lock-in period ends, you are allowed to make partial withdrawals from your corpus, which can come in handy whenever you need financial assistance. Additionally, this feature can come in handy during your retirement, when you get regular payments from your corpus made by the insurance company.
- Long-term goal fulfillment: This stems from the last point. A ULIP is an ideal product to support your long-term needs, like retirement planning and your child’s education. Once you have a sizeable corpus, the possibilities are endless.
What you should be aware of
- Slightly Higher Premiums: The premiums for ULIPs are higher when compared to other life insurance products, but the difference is not much. You can get plans starting from Rs. 1000. The primary reason for the higher premiums is that ULIPs are much more comprehensive, and when you consider that a part of the premium goes into yielding a profit, the premiums are justified.
- Market Risks: It should be kept in mind that the investments made in a ULIP are market-linked and are susceptible to market risks, but these are not any different from the risks associated with mutual funds or stocks.
Conclusion: Why invest in ULIPs?
ULIPs are a great way to serve two purposes with one policy. If you are considering buying a ULIP for your portfolio, make sure that you choose the right one with enough flexibility to cater to your changing needs.
One such dynamic ULIP is Wealth Secure+ by Edelweiss Tokio Life Insurance. You can check it out online on their website and see if the features suit your needs.