Money means different things for different people. Wherever you belong on your financial journey, a ULIP plan (Unit Linked Insurance Plan) can help you achieve your objectives. It is often believed that a ULIP policy only helps achieve long-term goals. However, the features of ULIP are such that one can also gain short-term returns by choosing the best ULIP in India. Before you invest in ULIP insurance, it is important to consider factors such as risk profile, tenure of your policy, financial commitments, and ULIP plan charges.
What is ULIP?
A ULIP plan is a multifaceted offering by insurance companies that combines insurance coverage with investment exposure in a single financial product. When you buy a ULIP policy, you make regular premium payments. A part of your premium payments is used for insurance coverage, whereas the balance is pooled with the assets of other policyholders and invested in equity and debt instruments, based on your choice.
Although initially, the concept of ULIP might seem confusing, especially with the investment aspect, however, one of the best features of ULIP is that policyholders need not regularly look at the investments as the insurance company undertakes the hassle on their part, which is inclusive of the ULIP plan charges.
Before you begin your search for the best ULIP to buy, you can make use of free online tools such as a ULIP calculator that will not only help you calculate your premiums and ULIP plan returns but also help compare different policies.
Let us analyse the benefits of ULIP funds for the short as well as long-term to help you with the best ULIP to buy.
Short-Term Benefits of ULIP Plan
Numerous benefits are provided with the purchase of ULIP insurance. While the long-term returns of a ULIP policy are often mentioned, policyholders can also reap its short-term benefits:
- Encourages Saving: ULIPs help inculcate the habit of saving, which is an important element in facilitating wealth creation. Even with a short-term investment, ULIP funds come with a lock-in period of five years. This instils the discipline of saving money from early on. If you withdraw the money before time, you are levied with certain ULIP plan charges.
- Provides Security: The concept of ULIP is such that it offers the dual benefit of wealth creation along with providing life cover. This means that in the event of the unfortunate demise of the policyholder when the policy is active, the nominees will be provided with a death benefit. This ensures that your family and loved ones are looked after, even in your absence.
- Enables Flexibility: ULIPs take changing financial commitments into consideration and thereby allow the policyholder greater control of their funds. At any point, the policyholder has the freedom to switch between funds and increase or decrease the amount that is paid towards the life cover. This means that policyholders can move their money from equity funds to balanced and debt funds and vice-versa to address their urgent financial needs. Flexibility is among the prominent features of ULIP.
- Grants Tax Benefits: ULIP investments are great avenues for tax-saving. With ULIPs, not only the premiums but also the ULIP plan returns (under certain conditions) are exempted from taxes under Sections 80C and 10(10D) of the Indian Income Tax Act, 1961. However, after the Budget 2021 announcement, the maturity proceeds of ULIPs will be taxable under certain circumstances. If the total premium paid during the year exceeds ₹2.5 lakhs, the maturity payout will be treated as Long Term Capital Gains (LTCG) and taxed accordingly.
Long-Term Benefits of ULIP Plan
New investors are often confused about whether they should invest in ULIPs for the short or long term. Ideally, you can reap greater benefits by investing in ULIPs for the long run. Following are the reasons why:
- Higher Costs Initially: When policyholders begin to invest, the ULIP plan charges are comparatively higher. This is because in the initial years of investment, the amount invested is usually lower, and so are the returns. The overall charges for ULIP decrease as the years go by. Additionally, market fluctuations hinder good returns in the short-term. In the long-run, you cannot only yield better ULIP plan returns, but the risk associated with them also reduces. It is therefore often recommended to extend the tenure of your ULIP insurance to at least 6-10 years.
- Market Linked Returns: ULIP investors can choose from a host of equity and debt funds depending on their risk profiles and return expectations. Those seeking to build a large corpus can exclusively choose to invest in equity funds through ULIPs as they are known to generate considerable returns in the long-term. This will average the impact of short-term market movements on the value of investments. When the market is down, your investment will fetch a higher number of units, and when the market goes up, the same investment will fetch a lesser number of fund units. Over time the cost averages and provides you with consistent returns.
- Flexibility of Fund Allotment: As there is no single formula to master the art of investment, your investment strategy has to be modified based on your financial goals and needs. As ULIPs allow investors to switch between funds, investors can align their risk portfolio with their life goal and mitigate market risks. However, you can benefit from this feature only if you are investing in ULIPs for the long run, as there is a need to carefully analyse the market fluctuations and identify your long-term commitments.
- Benefit of Compounding: Compounding means earning the return over the interest on the initial investment. Its benefits can be availed with long-term investments. This is because as the returns accumulate and become the principal amount, the overall returns expand exponentially in the later years of investment. Therefore, if you are looking for an investment option that will help you generate wealth in the long run, look no further and start your search for the best ULIP to buy in India.
The Edelweiss Tokio ULIP plans acknowledge changing financial needs and offer unique benefits to meet every financial goal. The Edelweiss Tokio Life Insurance Wealth Secure Plus plan allows you free unlimited fund migrations so you can adjust your ULIP investments as per your needs. You can even strengthen your ULIP plan with Edelweiss Tokio’s loyalty additions, booster additions, and maturity additions to get better returns on your investment.