How ULIPs Can Help in Meeting Long-Term Goals
When you earn, you have a goal in mind for which you are making, be it to fulfill your and your family’s needs or fulfill some financial dreams that you may have. Without proper savings and investments, achieving your long-term goals is difficult, be it buying a house, retiring, traveling, or saving up for your child’s education. The right way to achieve your goals would be to have diversified investments and savings. A diversified portfolio allows you to achieve your goals while keeping yourself secure. The need for an individual to have financial security while earning returns on investment has led to the popularity of the Unit Linked Insurance Plan (ULIP).
ULIP is a two-in-one policy that offers you life insurance and opportunities for investment in a single plan. You pay premiums for your ULIP policy, similar to any other life insurance. However, it is utilized differently, where the premium is divided and used to provide you with a life cover and is partly allotted to funds of your choice. Before you buy a ULIP, it is important to understand how it helps you to meet your long-term goals.
Several fund options
ULIP differs from your traditional investment. When you buy a ULIP, you can choose the funds you want to invest in. Several types of ULIP can be broadly divided into three categories based on your risk appetite. The three types are debt, equity, and balanced funds. Debt funds are for investors who have a low-risk profile. With low risk, debt funds usually offer lower returns than equity. If an investor takes risks, they can invest in equity funds. They have high risk but typically provide substantial returns in the long haul. Those who want to mitigate partial risk can invest in balanced funds. They are a combination of debt and equity funds. The variety of choices ensures that every investor’s needs are met with a policy like a ULIP.
When you get your paycheck, how often do you decide to save and procrastinate until your salary is almost over? With your needs and necessities, it is easy to forgo your long-term goals while meeting your present needs. When you buy a ULIP, you get life insurance and investment. Pay regular premiums, which ensures that you are investing some funds aside. The standard tip inculcates the habit of savings for the policyholder. You can use a ULIP plan calculator to check if your investments are enough to meet your long-term goals. Having recurring savings builds significantly in the long haul with compounding and allows you to create an enormous corpus of funds.
If you are unhappy with investing, you usually cannot switch your fund allocation. You either have to dissolve your funds or hold them, even if unsatisfied. You can switch between different types of ULIP funds anytime you want. Most plans allow you to change two to three times for free during the entire tenure of the policy. Based on your growing financial goals and investment strategies, you can change your allocation from debt to equity funds and vice versa anytime you want. Also, since ULIPs are directly subjected to market fluctuations, switching funds allow you to make the most of the changing markets. It will enable you to maximize your returns while mitigating risks by switching funds as the market changes.
Tax exemptions and deductions
A key factor to consider when buying any financial instrument is its tax implication. Especially in the long haul, you want tools that give you a tax advantage. A key component of purchasing a ULIP is getting tax benefits on multiple levels. You can claim tax deductions for the premiums that you pay for your ULIP under Section 80C of the Income Tax Act. You can use a ULIP plan calculator to estimate the tips payable. The maturity amount you receive when your plan matures is exempted, provided certain conditions are met. If you, as a policyholder, lose your life during the policy duration, the nominee will receive the death benefit. The death benefit is the sum assured or the fund value of an investment, whichever is higher. It is also exempt from any taxation according to Section 10 (10D) of the Income Tax Act, subject to the terms and conditions mentioned therein.