Insurance was traditionally thought to cover risk, whether the risk pertained to loss/damage caused by fire, theft, etc. or protection against risk to life. With the introduction of ULIP or Unit Linked Insurance Plan, the role of life insurance expanded to include a market investment component. ULIP policies invest a part of the premium you pay in the market intending to earn better returns from stocks.
Secure Financial Goals With Ulips
With the expanded role of ULIP plans, you can look forward to not only securing your future but also to fulfill your financial goals in a planned and systematic manner. ULIPs can help fulfil your financial goals better if you first clearly define them. Defining the goals will help you focus on the right ULIP plan for you. ULIPs also offer you the facility to customize your preferences by opting for investments in the funds best suited to your risk appetite. If you prefer steady incremental growth, debt funds may be the right investment for you, as against equity funds that offer higher returns at higher risk. But you need not remain locked in with the fund you choose initially; you may switch funds if you so desire to avail the returns from better performing funds.
Cover & Protection
ULIPs, like other insurance products, offer a death benefit, which is what the nominee receives in the event of the death of the policyholder during the policy term. The policyholder receives a maturity benefit on the survival of the ULIP term.
The benefits of ULIP do not stop at coverage and growth but also help you save on taxes as premiums are exempt from tax under Section 80C while the maturity amount received is also tax exempted under Section 10(10D) of the Income Tax Act 1961.
It is important to note, however, that ULIPs come with a lock-in period of 5 years. This helps you stay on course with your savings. After the 5-year period, you can avail of liquidity by fully or partially withdraw your funds as and when you need them.
The importance of saving a part of your earnings for use later can never be over-emphasized. Still, most people lose focus and find it difficult to stick to their commitment. They lack the financial discipline needed to stick to the plan and lose their way. ULIPs will help such individuals stick to their commitment and fully leverage the benefits of the saving habit that tends to grow on you.
Start early: It is never too early to start saving, and an early start gives you the power of compounding that allows you to grow a large corpus with even small but regular investment in ULIP.
Say no to narrow focus: You will be better off with a plan that allocates your funds across a wide spectrum of assets. The wide spectrum strategy not only lowers risk, but it also grows your funds better than one that is focused on one or two funds.
ULIPs are a relatively new insurance offering with their cover plus growth approach and maybe just the right plans for insurance in an increasingly investment-driven, personal finance environment.