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What Are You Missing If You’re Not Investing in ULIPs

What Are You Missing If You’re Not Investing in ULIPs

With the advent of technology, the insurance sector has also evolved and offers products as per the changing needs. Just like electronic gadgets, insurance products have also come up with two-in-one feature. One such investment option is ULIP or Unit Linked Insurance Plan. This market-linked insurance product offers the dual benefits of insurance and investment under one single plan. In fact, it is considered as one of the best tax saving products. With ULIPs, you can assure that your money is not lying stagnant, rather you can use that money in generating wealth. In ULIPs, half of the premium that you pay goes towards life coverage and rest is invested in market instruments. This insurance-cum-investment plan helps you to fulfil your long-term financial goals, be it buying a house, child’s education, marriage, etc. Besides, here’re the following benefits that shows what you are missing out on if you are not investing in ULIPs, take a look –

  • Life coverage – ULIPs offer protection along with the investment. It offers life cover that a policyholder’s family can fall back on in case of any unfortunate event or exigency.
  • Tax Benefits –Not many of us are aware of the fact that ULIPs come with tax benefits. In fact, ULIPs are considered as the most efficient tax-saving instruments. As per Section 80C of the Income Tax Act, 1961, you are liable to get tax benefits on the premiums paid towards the policy. Also, you can avail tax benefits under Section 10D of the Income Tax Act.
  • 5-year lock-in period – Lock-in period is basically the period during which you are not allowed to make any withdrawals. This long-term investment product comes with a lock-in period of 5 years so that you stay invested for a longer time. Although, if you discontinue or surrender the policy during this period, then you will not receive any payouts. That’s because withdrawals are allowed only after the completion of 5th policy year. Thus, it is advisable to stay invested for a longer period if you want to reap maximum benefits.
  • Achieve long-term financial goals – If you want to generate wealth in the long run, then ULIP is the perfect option for you. This is because ULIPs are linked with the stock market and there are high chances of earning great returns if you are planning to invest for the long run. It helps you in fulfilling long-term financial goals such as buying a new car, child’s higher studies, opening a start-up, etc. So for those who have long-term financial goals, ULIP is the right choice.
  • Different Investment Funds – ULIPs offer a range of investment options to choose from. Depending on your risk appetite, ULIPs allow you to choose from a wide range of funds which includes debt fund, equity fund, etc. For example, if you are reluctant to take risks, then you can choose to invest in debt funds while if you are a high risk taker, then you can choose to invest in equity funds. Balanced funds are for moderate risk takers.
  • Rider benefit – ULIPs also come with an additional benefit options i.e., riders. This is basically an additional cover that provides extra protection at an added cost.
  • Switch Facility – One of the major benefits of ULIPs is that it gives you the flexibility to choose your fund option. They are highly flexible and thus, allows you to switch between funds as per the performance and market condition.
  • Partial Withdrawal Option – This facility allows you to make partial withdrawals from the policy. Through this facility, you are allowed to withdraw money from your fund value after the completion of your policy term.

There are several benefits that makes it an ideal option for investment. So, if you understand how the dual features of ULIP works, then you must make it a part of your financial planning as investing in ULIPs can be rewarding. Besides, if you are planning to invest in ULIPs online, then prefer to go with Canara HSBC OBC Life Insurance. They offer a comprehensive Invest 4G plan which is designed specially to meet your insurance as well as investment benefits.

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FAQs

In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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