A ULIP will not only provide you with the benefits of life insurance, but also allow a part of your funds to be invested in debt or equity, in sync with your individual financial goals.
Understanding ULIPs
A Unit Linked Insurance Plan is a financial scheme, providing dual benefits of both insurance and investment. While a part of your funds is used to provide you with life cover, the rest is invested in debt instruments, equity instruments, or a mix of both. The plan not only provides your family with financial stability in the case of any unfortunate eventuality, but also provides you with high returns from the market.
You don’t require expertise in the financial market, as ULIPs are managed by professional fund managers. They invest your funds in a wide variety of market instruments, ensuring high returns.
ULIPs also feature fund switching, which allows you to switch investments from debt to equity or vice versa based on the performance of the funds. Fund switching also depends on your risk appetite, i.e. the amount of risk that you are willing to take in the present market scenario.
According to the Insurance Regulatory and Development Authority of India (IRDAI), ULIPs have a fixed lock-in period of 5 years. A fixed lock-in period ensures investors’ discipline, besides allowing the benefit of capital appreciation.
Five Reasons to Invest in ULIPs While You’re Still Single
Here is a list of five reasons why you should consider investing in ULIPs while still being single.
After all, building a solid financial foundation early on can bring greater freedom and confidence in the years to come.
- Repayment of Financial Liabilities: It is possible that you or your parents would have taken educational loans, along with other borrowings, to meet the cost of your education. Once you start earning, you can pay off your own student loans or effectively contribute towards the repayment of those your parents have taken. A ULIP can allow you to meet this financial liability with ease. On the one hand, it ensures you build a significant financial corpus to help pay off these loans in the future. On the other hand, it ensures that the repayment of these loans does not become a financial burden on your parents by providing them with a death benefit in the event of your unfortunate demise.
- Tax Benefits: If you have started earning, then you must always select an investment avenue that provides tax benefits. It is precisely here that a ULIP becomes unbeatable. The premiums paid for ULIPs are exempt from taxes under Section 80C of the Income Tax Act, up to ₹1.5 lakh per financial year. Furthermore, the returns you receive are also tax-free under Section 10D of the Act, provided the annual premium does not exceed ₹2.5 lakh (as per amendments made in Budget 2021). If the premium exceeds this limit in any year, the returns from such ULIPs may be subject to capital gains tax. . ULIPs issued before February 1, 2021, or where the annual premium stays below ₹2.5 lakh, are still exempt from LTCG (Long Term Capital Gains) tax, making them a relatively tax-efficient option among market-linked products.
So, if you’re looking for a blend of insurance, investment, and tax-saving, ULIPs can be a smart addition to your portfolio.
Disclaimer: Tax benefits are subject to change in tax laws. Please consult your tax advisor.
- Financing of Long-Term Goals: If you're single and earning, this is the ideal time to start preparing for future financial responsibilities. Whether it’s saving for your wedding, planning ahead for your child’s education, or building a retirement fund, early planning gives you a significant edge.
Unit Linked Insurance Plans (ULIPs) can be particularly effective for such long-term goals. One of the key advantages of ULIPs is the power of compounding. Your returns are reinvested to generate further growth over time. You also have the flexibility to exit after the minimum lock-in period or continue reinvesting for greater returns. With disciplined investing, ULIPs can help you build a robust financial cushion to comfortably meet your future needs.
- Flexibility of Fund Switching: As a single person, you should consider investing in a ULIP because of the flexibility offered by them. If you are unsatisfied with your returns, you can switch your funds to equity, debt or balanced funds. Typically, you are allowed four switches in a given financial year. This can vary significantly depending on the specific ULIP plan and the insurer..
Moreover, being in the earlier stages of your life, your priorities are likely to be constantly evolving and growing. The flexibility to switch your funds and redirect your premiums gives you the chance to align your ULIP investment with your changing financial goals.
- Higher Returns and Fewer Charges: As compared to other investment avenues, like PPF, NPS, post office time deposits, tax-saving fixed deposits, and NSC, ULIPs offer higher returns, sometimes up to 12%, depending on market performance and fund choice..
Moreover, as per the revised IRDAI guidelines, ULIPs now come with reduced charges related to premium allocation, fund management, and policy surrender, making them more cost-effective than before. This combination of market-linked growth and lower fees makes ULIPs a compelling long-term investment option for goal-based financial planning.
