Should You Invest in Unit Linked Insurance Plans (ULIPs)?

On an average, the life of every Indian revolves around 3 primary life goals- Wealth Creation, Child’s Education/Marriage, and Retirement. The same is with Karan 28-year-old who got married recently and as a couple they had their financial goals set. They wanted to build a corpus for the down payment of their house 10 years from now, buy a car and wanted a life cover to shield against the uncertainties of life.

Among the various financial instruments available the couple settled on a unit-linked insurance plan (ULIP) after mutual consultation to address their future goals.

Read on to know how you can secure your future and also grow your wealth in a single plan.

• Life Insurance Cover

One of the fundamental mantras of a secure future is to have a life insurance cover to safeguard family’s financial future. Even financial planners advice to be prepared against the unpleasant surprises of life. ULIPs offer life insurance cover along with an investment component.

• Investment for building wealth

Once protection is taken care of, it’s essential to focus on investments for wealth building. ULIPs take care of your investment needs and wealth building by investing through various funds, of varying degree of risk, in the market.

ULIPs invest primarily through funds of diverse asset classes including equities, balanced, and debt. While equities offer you high returns on your investment, balanced and debt funds prevent erosion of the corpus in case the market turns sour.

• Flexibility in investment to build and protect the corpus

For a secure financial future, it’s essential to make investments that beat inflation. Inflation erodes the value of wealth with time. At the same time, it’s essential to exercise caution to ensure that your hard-earned wealth doesn’t suffer due to market swings.

ULIPs offer you the much-needed flexibility in your investment to make sure not only you beat the effects of inflation, but also protect your corpus.

In the initial stages, you can maximize your equity exposure as this asset class gives you the best chance of inflation-adjusted returns. However, once you near your goals, you can switch from equities to balanced and debt funds. Additionally, you can also switch an under-performing fund with a more profitable one.

• Partial withdrawal facility

The lock-in period of 5 years helps investors remain invested for a long period, giving their money the chance to grow. Also, it inculcates a disciplined investment habit.

However, there are occasions where you might need to withdraw money to take care of your needs. Instead of applying for loans and paying EMIs, you can withdraw money from your ULIP. Note that you can exercise this facility after the end of the mandatory 5-year lock-in period.

• Rising Star Benefit (Child Plan)

The Policyholder/Proposer under this benefit can be a parent/grandparent/guardian or any person who has an insurable interest in the insured child. It is an optional benefit. If Rising Star Benefit has been chosen, an additional benefit will be applicable to the life of the Policyholder in addition to the death benefit applicable to the life of the Life Insured.

The premiums you pay for your ULIP qualify for tax deductions under section 80C of the Income Tax Act, 1961 and the maturity and death proceeds received are also tax exempted under section 10(10D) of the Income Tax Act, 1961.

Karan and his wife made an investment in ULIP and are now confident that they will achieve their life goals without any worries.