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ULIPs or Unit Linked Insurance Plans are essentially long term saving options since they have an initial five-year lock-in period. Moreover, it is advisable investing in a ULIP Plan at an early age, because then you can allow your investments to derive significant benefits and grow from the power of compounding. That said, ULIP plans also offer several short-term investment benefits throughout the lock-in period and policy tenure, while providing life insurance protection against financial emergencies and unforeseen expenses. We take a look at ULIPs and their long-term and short-term benefits.
What is ULIP?
Unit Linked Insurance Plans or ULIPS provide both wealth creation opportunities and financial safety to you and your loved ones – all under a single policy. The premium amount you pay towards a ULIP plan is partially allocated into different market-linked instruments (equity and debt fund options). At the same time, the remaining goes towards providing life insurance coverage.
ULIPs can help inculcate a habit of disciplined savings. Additionally, the risk associated with the ULIP investments lessen over the period of time – more the investment period, lesser is the risk involved.
Short-Term Benefits of ULIP Investments
Primarily, ULIP plans come with a five-year lock-in period, wherein you cannot withdraw your money before the period completes. Even if you decide to discontinue the policy within this period, you will receive the repayment only after the completion of five years. On surrendering the policy, you may have to pay the surrender charges, which would prove detrimental to your saving and wealth generation goals.
However, you can avail of tax-saving benefits up to Rs 1.5 lakh on the premium amount payable annually, throughout the investment tenure. Thus, you can start with tax savings from the very first year of investing in ULIPs while enjoying the protection of guaranteed life insurance protection.
Long-Term Benefits of ULIP Investments
Unit linked insurance plans allocate a portion of the premium paid into different fund options (both equity and debt), thus, diversifying risk and maximizing your gains in the long run. Additionally, ULIP investments are flexible, as you can seamlessly switch between various equity and debt fund options based on your wealth appreciation goals, market fluctuations, and risk appetite.
Moreover, the added benefit of tax savings throughout the investment tenure enable you to preserve wealth, while working on generating wealth from your existing savings and availing the insurance protection. Another advantage of ULIPs, in the long run, is the availability of partial withdrawals, once the 5-year lock-in period completes.