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Why ULIP is a Better Investment Option for Long Term Wealth Creation?

Why ULIP is a Better Investment Option for Long Term Wealth Creation?

If you are looking for a reliable option that helps you to generate wealth in the long run, then ULIP is the perfect choice for you. As ULIPs are best suited for those who are looking for a long-term wealth creation plan. This one single plan offers you the dual benefits of savings and protection. Popularly known as Unit Linked Insurance Plan, ULIP offers both insurance and investment. It offers life cover with good returns, and also helps in saving taxes. In fact, as per the current market situation, ULIPs have become one of the best investment options. Check for the following pointers when you are investing in Unit Linked Insurance plans for long term wealth creation:

  • Lock-in duration - If you want to develop a habit of disciplined investing, then ULIP is the ideal bet for you as it comes with a lock-in period of five years. Since ULIP is a long-term investment option, investing in a single ULIP would be sufficient. Generally, lock-in period is calculated on the basis of the date of policy issued and the premium amount has to be paid monthly or annually as a lump sum. Moreover, the policyholder can choose to discontinue the policy after the lock-in period of 5 years and can withdraw money as per the need.
  • Benefits of Limited Pay term Plan
  • Flexibility - ULIPs are very flexible as they give you the option of switching funds during the policy period. In fact, it is the only financial tool that offers such flexibility. It allows you the insured to move their investment amount fully or partially from one fund to another. You can opt for any one of them as per your needs and performance of funds. This includes growth, balanced, equity, and income funds. In fact, you can easily make three to four switches every year without any cost. All you need to do is to choose the policy, change its fund allocation, and go for it till your policy ends so that you enjoy long-term benefits
  • Better returns than other products - This is yet another reason why ULIP is the apt option for long-term wealth creation. As compared to other products, ULIPs have great potential to gain good returns as they invest the premium paid by you in several asset classes. It also gives you the option to opt for a different fund every year as per its performance.
  • Tax benefits - ULIPs also allow tax benefits as per Section 80C of the Income Tax Act, 1961. An ideal tax-saving option depends on several factors such as lock-in period, maturity benefits and amount of return. Thus, as compared to other investment options, ULIP is relatively the best investment option as you buy the policy once but get tax benefits every year till the end of the policy term

Hence, with so many investment options available in the market, it gets difficult to choose the one befitting your investment needs. Thus, you may choose ULIP as your investment instrument as it maintains a great balance between providing insurance cover and generating great returns. Besides, if you are planning to invest in an ULIP, then choose to go with Canara HSBC OBC Life Insurance as it provides the best ULIP that provides you with ample choices to invest in along with additional investment options, loyalty additions, wealth boosters as per your needs.

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Annual Income (In Lacs)

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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