ULIPs are investment instruments that combine the benefits of both life insurance and investments in money markets. The primary feature of a ULIP investment is that the premium paid for a ULIP is divided into two parts; one part goes towards coverage of risk to life and the other towards investment in money market instruments. ULIPs, as an investment category, have a lot of inherent benefits. Here, we identify 5 advantages of investing in ULIPs over other investment options.
Understanding the advantages of investing in ULIPs
1 Choose your investment mix
Based on your risk appetite, you have the option to choose the mix of market entities that you invest in. You can opt to invest in debt funds if you are a low risk-taker, balanced funds if you are a moderate risk-taker, and equity funds if you are a high-risk taker. You also have the option of switching between funds, depending on your market outlook. You have the option of referring to fund ratings of independent investment research agencies like Morningstar before deciding on the type of funds and policy to invest in.
ULIPs like Edelweiss Tokio Life Wealth Accumulation (Accelerated Cover) give you the option of switching between funds depending on your market outlook. This flexibility is not available in other investment plans The advantage of this unit-linked investment plan is that it gives you the flexibility of choosing and switching between debt and equity funds. During an uncertainty, you can invest in debt funds, and when the market performs well, you can opt for equity funds. Staying invested for a longer duration, i.e., 10 years or so, may provide you with opportunities to reap big benefits with these small, but significant alterations.
3 Long term investment
For achieving long-term goals like buying a house, a new car, opening a start-up, etc., ULIPs prove to be a good option. With the power of compounding, ULIPs provide a better return over a longer time horizon – this is an important advantage of investing in ULIPs. In case you exit the policy after 5 years, what you receive in ULIPs will be far greater than what you would get if you would have only saved that amount without investing. Your money will grow faster over a longer time horizon than keeping it deposited in savings accounts or bank fixed deposits.
4 Tax Benefits
Not all investment options provide tax benefits. Since ULIP is a life insurance product, it provides tax benefits. For premiums paid, you get tax rebates under section 80C, and all pay-outs received are exempt under section 10D of the Income Tax Act, 1961. So you not only save money but also can see it grow.
5 Life cover
In Conclusion: The Big Advantages of Investing In ULIPs Are Manifold!
As mentioned above, ULIP as a product is offered by Life insurance companies. ULIPs fulfill your need for both investment and protection. Though the life cover provided by a ULIP may not be as high as that of a term plan, it does provide some amount of life cover.
ULIPs can be an ideal investment option for your long-term financial goals. It is recommended that you check the performance of individual funds while investing in ULIPs.