ULIP is a life insurance product, which offers risk cover for the insured along with investments options to any of the qualified investments in money markets such as stocks, bonds or mutual funds. As a single integrated plan, it combines the best of investment and insurance. It is a plan which is linked to capital market and provides flexibility to invest in equity or debt funds as per risk taking capabilities. ULIPs can be utilised for numerous advantage pay-outs including education, retirement, life insurance and more. It provides many inherent provisions to the insured as benefits mostly when the investment is over a longer period. If an individual is thinking for a long-term investment, here are the reasons why investing in ULIPs score over other investment options.
- ULIPs are flexible:There are various financial needs at different life phases of an individual. ULIPs provide features such as partial withdrawals, various premium payment options, mutual fund options and these may be used to customize the savings plan. The main advantages ULIPs provide is the flexibility. It offers flexibility by offering the benefit of switching and redirection. Switching can be done during market fluctuations, changes in risk appetite, etc., where an individual can change the existing amount of investment from one fund to another. On the other hand, in redirection, an individual can define the investment amount into different funds for their future investments, without disturbing their existing investment set up. These features are mostly free of charge or attracts nominal charges, if applicable and are not available in any other mutual funds or other kind of financial investments. It also offers liquidity in the form of partial withdrawals where an individual can withdraw some portion of the fund value created after a specific time period.
- ULIPs are free from LTCG Tax:With the introduction of long term capital gain (LTCG) tax in the budget 2018, if the profit gained exceeds Rs.1 lakh from the sale of shares or equity mutual fund schemes retained for more than a year from the date of acquisition, then the investors have to pay 10% tax on the long-term capital gains. And as per the current rule, ULIPs are free from LTCG tax. Equity based funds are exempted from LTCG tax, so ULIPs stand as an alternative plan to get possible returns from investing in equity.
- ULIPs assures long term investment:ULIP offers better returns if invested for a longer tenure, with the power of compounding. With variations in the lock period from 3 years to 5 years, ULIPs allow the investments to be kept for a minimum term period of 5 years, which is a longer lock in period as compared to other schemes. When the amount invested is for a longer term period, ULIPs makes the best of yields.
- ULIPs offer Tax benefits:The annual premium amount for a unit linked policy is eligible for tax deduction under section 80C of the Income Tax Act, 1961 and the maximum permissible limit to avail the tax deduction is Rs.1.5 lakhs. ULIPs offer tax free maturity price under Section 10(10D) in case the annual premium payable is less than 10% of the sum guaranteed amount for the policies issued after 1st April, 2012. For the policies that are purchased before 1st April, 2012, the maturity profits are tax free if the annual premium payable is less than 20% of the sum assured.
- ULIPs offer wealth creation and life cover:ULIPs fulfil the need for both investment and protection. These are associated to capital market and offers flexibility to choose the funds out of equity, debt or balanced fund according to the individuals risk appetite. Based on the risk taking capability and financial goals, an individual can invest in equity funds. However, life cover provided by the ULIP may not be as high as that of term plan, but it offers life cover. In case an individual meet a sudden demise, the lump sum amount of the sum assured is received by the beneficiary.