Despite life insurance being such a vital part of a financial plan, many people tend to ignore its importance. This is because traditional insurance plans only offered a secure life cover and no returns. But over the years, with the emergence of ULIPs (United Linked Insurance Plans), investors started buying life insurance policies.
This is because ULIPs offered a secure life cover along with attractive returns through market-linked investments. Moreover, ULIP policies have specific features such as Systematic Withdrawal Plans (SWPs) that make them a viable investment option.
Here is everything you should know about ULIPs, SWPs and the benefit of SWPs:
What are ULIPs?
ULIPs are an ideal investment combination of insurance and investment. The insurance company diverts a part of the premiums to provide you with a secure life cover while using the rest of the premiums to invest in funds based on equity, debt, or a combination of both. The funds are chosen as per your risk tolerance and financial objective. A ULIP plan is primarily a wealth creation plan that also offers a comprehensive life insurance cover.
ULIP plans are also eligible for tax benefits under Section 80C of the Income Tax Act, 1961. Moreover, the death benefit and maturity proceeds (if the total annual premiums are below ₹2.5 lakhs) of the plan are also exempt from taxes under Section 10(10D).
The best ULIP policies offer competitive features and attractive returns to ensure ULIPs remain a reliable and wise investment avenue for investors of all kinds. A major highlight of ULIP plans is the Systematic Withdrawal Plan (SWP).
What are Systematic Withdrawal Plans in ULIPs?
A ULIP plan with Systematic Withdrawal Plan (SWP) features implies that you have an option to withdraw your ULIP fund value in a phased manner. The SWP is a concept of ULIP investment, wherein you can withdraw money in instalments, unlike a lump sum withdrawal. You can use your drawings as per your need or even direct them into a preferred savings bank account to temporarily deal with market fluctuations.
The SWP feature allows you to customise the cash flow from your ULIP as per your requirement. You can either choose to take out the capital gains or even withdraw a fixed amount at a frequency of your preference. Apart from the sum you withdraw, the rest of the money stays invested in the ULIP, garnering effective returns.
What are the benefits of Systematic Withdrawal Plans?
With the help of the SWP feature, you can take timely withdrawals as per your financial needs. The key benefits of SWPs include:
- Disciplined investing: You can set a frequency for your SWP, which means that a specific amount of money will be withdrawn from your ULIP every month or at an agreed period, regardless of the market situation. This will protect you from withdrawing a large sum in panic due to market fluctuations. SWP also withdraws your money when the market is high. This proves advantageous because this protects you from the impulse to invest more during boom market periods.
- Fixed income: The SWP becomes a reliable source of fixed income during your retirement years. You can use this money to fulfil your retirement expenses, such as medical costs, travel costs, etc. Moreover, even during your working years, you can use the SWP advantage to cover costs such as your child’s education, home loan EMIs, etc. You can schedule your withdrawals as per your financial needs.
- Financial goals: SWP can also help you achieve your financial goals more easily. If your goal requires to be funded in a phased manner, the SWP feature in a ULIP can be highly beneficial. It will provide you with the funds at the right time, enabling you to achieve your objective and not delay them because of a cash crunch. For instance, if you wish to own a car for your family, you can pay the car EMIs with SWP from your ULIP scheme.
- Tax efficiency: The withdrawals you take under the SWP feature are considered as redemptions and hence, are not subject to tax deductions at source (TDS). This implies that you owe tax only on the income component and not on the capital portion of your withdrawals. You have the option to set up your withdrawals such that you only take out the appreciation on the investment amount. This will mean that your capital remains invested in the ULIP scheme while you enjoy ULIP taxation benefits and gains at regular intervals.
Wealth Ultima plan by Edelweiss
Wealth Ultima is an investment-linked plan from Edelweiss Tokio Life Insurance to grow your wealth, ensure your family’s protection and achieve your future goals. The plan helps you save, invest, and withdraw systematically to ensure you evade the negative market fluctuations. You can pay premiums monthly and shield yourself from market fluctuations. You can either opt for a self-managed investment strategy, where you are responsible for your asset allocation. Alternatively, you can choose the Systematic Transfer Plan (STP), where your funds are either managed as per your life stage or as per your profits goal for a ULIP charge.
Apart from this, the Edelweiss Tokio Life Wealth Ultima Plan offers attractive features like:
- Systematic Withdrawal Plan (SWP): After the 10-year ULIP lock-in period, you can choose to receive your payout in the form of regular instalments. The instalments are a pre-decided fund value. You can choose when and how you wish to receive your drawings. This helps you achieve your financial goals and secure a stable source of income during retirement.
- Fund additions: The Wealth Ultima Plan rewards loyal patrons by routinely making additions to the fund value over the years. The plan gives Guaranteed Additions and Loyalty Additions annually to the fund value beginning from the 6th policy year. Booster Additions are added every 5 years, beginning from the 10th year of the policy.
- Tax benefits: The plan is eligible for tax deductions up to ₹1.5 lakhs under Section 80C of the Income Tax Act, 1961. Further, the death benefit is also exempt from tax under Section 10(10D).
Trust this ULIP plan of Edelweiss Tokio Life to financially secure your present and future.
For more information on the Edelweiss Tokio Life Wealth Ultima Plan or the Systematic Withdrawal Plan, contact us today.
Aastha Mestry - Portfolio Manager
An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.