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Everything You Need To Know About Investing In ULIP Plan


Insurance has evolved into a current necessity. However, most individuals do not purchase insurance because they believe it just offers life insurance and has no investment benefit. However, insurance plans such as the ULIP plan, or Unit Linked Protection Plans, attempt to offer the policyholder with the combined benefits of life insurance and wealth growth.

ULIP plan provides insurance coverage while also assisting you in achieving your life objectives by using the potential of market-linked returns.

What is ULIP Plan?

The official name of the ULIP plan is Unit Linked Insurance Plan, and it is a multi-faceted life insurance plan. A ULIP plan combines life insurance and investing. As a policyholder, you must make regular premium payments, a portion of which is used to provide life insurance coverage.

The remainder is combined with assets received from other policyholders and then invested in financial instruments (equity and debt) like mutual funds. Investing in a ULIP plan allows you to be financially secure in the event of an emergency while also growing your money.

Benefits of ULIP Plan That You Must Know

Do you want to know what the advantages of a ULIP plan are? A ULIP plan is a chance to participate in various market-related assets such as equities, debt, and balanced funds to earn long-term investment returns. ULIP plan stands for Unit Linked Insurance Plans, and it indicates that your investments in funds are vulnerable to market swings.

So, depending on your risk tolerance and investing objectives, you may use a ULIP plan to invest in a range of fund alternatives.

You can also use a ULIP calculator to get an idea of the premium payable and the predicted returns – this will help you better grasp ‘what is ULIP plan’ and its many benefits. Here are some other advantages of ULIP plans:

1. Market Linked Returns

A ULIP plan is a chance to earn market-linked profits by investing a part of the premium in market-linked assets such as debt and equity (in varying proportions).

2. Life Protection with Savings

Unit-linked Insurance Plans (ULIP full form) help safeguard you and your loved ones from life’s crises in addition to investing a portion of the premium in market-linked products.

As a result, you may benefit from market-linked profits while the ULIP plan handles your protection needs.

With the need for protection against life’s unforeseen events taken care of, you may create a regular practice of saving and investing, accumulating considerable wealth over time with ULIP plans.

3. Flexibility

ULIPs, or Unit Linked Insurance Plans, assist you in meeting your financial goals by allowing you to —

  • Depending on your changing needs, you can choose between investing funds.
  • Make partial withdrawals after the initial 5-year lock-in period has expired.
  • Single premium additions allow you to invest extra quantities of money (in addition to the normal premium) as and when required.

4. Level Paying Premiums

All regular premium or limited-term premium payments under a ULIP plan must have a uniform or level premium payment structure. Any extra premium payments are handled as a single premium to offer life insurance coverage.

5. Even Distribution of Charges

According to IRDAI, the charges charged on ULIP policies are fairly spread during the 5-year lock-in term to guarantee insurers avoid hefty upfront costs. Before investing your money, make sure you understand the ULIP plan costs.

6. Tax Benefits

The premium paid for ULIP plans is tax-deductible under Section 80C of the Income Tax Act of 1961, up to a maximum of Rs. 1.5 lakh. At the same time, the ULIP plan’s maturity/death benefit is tax-free under Section 10(10D) of the Income Tax Act of 1961.

7. Top-up facility

Many insurance providers also enable you to invest over your current premium payment by selecting a top-up premium. This ULIP advantage is most beneficial when your ULIP plan is performing well, and you have the option to invest more to earn more significant returns. Furthermore, a top-up facility is more practical, simple, and cost-effective than purchasing a new plan.

Fund Option Under ULIPs

Some of the most frequent investment possibilities accessible through ULIP plans are as follows:

Equity Funds

The allotted investment amount in an equity fund of ULIP plans is used to acquire equities that have a Net Asset Value (or NAV) connected with them. The NAV of a Fund is the price per share (or ‘unit’) in the Fund.

The ULIP plan, as its full name implies, is a market-linked product, which means that investments inequities have a significant inherent risk due to market volatility. However, stock investments might be the most profitable.

Debt Funds

The premium paid for debt funds is used to invest in assets such as government bonds and debentures, which are less risky than equity investments. However, as compared to equity investments in ULIP plans, debt funds may provide a lesser return on investment.

Hybrid or Balanced Funds

Hybrid or Balanced Funds are developed for ULIP plans to enable capital growth (via the equity component) while assuring lower risk (due to the debt component).

In the event of market swings, any loss from the equity element is offset by the lower risk but constant returns from the fund’s debt portion.

What is ULIP Calculator?

Now that you understand what a ULIP plan is and how it operates, you must create accurate investment estimates. Before purchasing a ULIP plan in India, you may use a ULIP Calculator to analyse and assess your options.

A ULIP Calculator is a tool that aids in determining the maturity amount based on the ULIP policy’s estimated future investment value and returns.

You only need to submit your data, investment amount (exclusive of GST), payment frequency, premium payment term, and investment duration to assess your potential returns from the ULIP plan. The calculator will calculate the returns and the amount of life insurance coverage needed.

Wrapping It Up

A ULIP is a single plan that provides savings and protection. ULIP, or Unit Linked Insurance Plan, is a type of life insurance that also serves as an investment vehicle.

It offers significant profits on life insurance while also assisting in tax savings. In fact, given the present market conditions, ULIPs have emerged as one of the most popular investment vehicles. Before you decide to invest in a ULIP plan, you need to understand how they function and why individuals choose to do so.

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