Unit Linked Insurance Plans (ULIPs) have gained popularity across various types of investors. According to a survey conducted in 2021, after the initial wave of the COVID pandemic, 92% of participants expressed a stronger preference for ULIPs. These insurance policies, blending insurance with investment, cater to the needs of many individuals, making them widely favored. For young professionals, ULIPs might serve as a suitable option for achieving their financial objectives. Let’s delve into some of the advantages of ULIPs.
The Advantages of ULIPs
Here are several benefits of ULIPs that can be advantageous for young professionals, similar to other investors:
- Returns Tied to the Market
ULIPs are tied to the market, allowing you to select a fund based on your risk tolerance. These market-linked funds move in sync with the market and have the potential to generate returns on your investment. These returns play a role in building a fund for your financial targets.
By using a ULIP calculator, you can estimate the fund that could accumulate through the market-linked returns generated by the funds in which you invest.
- Diverse Investment Fund Options
ULIPs offer a range of investment funds to choose from. These funds ensure that the plan aligns with the diverse investment needs of different professionals. For those comfortable with high risk, equity-oriented funds are suitable. On the other hand, if you seek stable returns and are risk-averse, various debt funds cater to your investment requirements. Furthermore, ULIPs present balanced or hybrid fund choices that merge equity and debt securities, providing the benefits of both asset classes.
- Insurance Security
Functioning as a life insurance policy, ULIPs offer insurance coverage in case of premature death. Hence, young professionals can utilize this insurance coverage to accumulate wealth and financially safeguard their families against the risk of untimely demise.
- Adaptable Investment Management
ULIPs are flexible insurance plans that enable you to adjust your investment as per changing needs and market conditions. Some of the adaptable advantages include:
- Switching: Changing investment funds during the policy’s duration when your risk profile or market dynamics change.
- Partial Withdrawals: Making partial withdrawals from the fund value after a five-year lock-in period, if funds are required.
- Top-up: Adding extra investments to ULIP through top-up premiums, subject to policy terms and conditions.
- Goal Achievement
Various types of ULIPs exist in the market to help you meet your financial targets. Some examples include:
- Endowment ULIPs: Building a fund for any financial goal you have.
- Whole-life ULIPs: Providing lifelong coverage and long-term wealth creation.
Depending on your financial aims, you can choose a suitable plan.
- Tax Advantages
Lastly, the tax benefits offered by ULIPs should not be overlooked, subject to the provisions of the Income Tax Act, 1961. Some of these benefits include:
- Premiums paid for life insurance policies, including ULIPs, qualify for deductions under Section 80C, up to Rs.1.5 lakhs, for policies bought on or after April 1, 2012.
- Policies bought before March 31, 2012, allow deductions for premiums up to 20% of the death sum assured.
- Premiums up to 15% of the death sum assured are deductible under specific conditions for policies bought on or after April 1, 2013, for individuals with defined disabilities or diseases.
- Partial withdrawals and switching are tax-free.
- The death benefit is tax-free, subject to fulfilling other tax criteria.
- ULIPs purchased before February 1, 2021, have tax-free maturity benefits, as per Section 10(10D) conditions.
- For ULIPs bought on or after February 1, 2021, the maturity benefit is tax-free if annual premiums for all ULIPs are up to Rs.2.5 lakhs. Higher premiums lead to equity/debt oriented capital gain taxation based on underlying assets.
ULIPs can be integrated into young professionals’ financial portfolios to aid in fund creation for their objectives.
Charges in ULIP Plans
A ULIP plan involves various charges that should be understood. Some of these charges are as follows:
- Premium Allocation Charge: Deducted from the premium to cover policy issuance costs like underwriting expenses and distributor fees.
- Policy Administration Charge: Covers insurer administration costs, including paperwork and record keeping.
- Fund Management Charge: Pays for fund management by experts overseeing ULIP funds.
- Mortality Charge: Covers insurance coverage.
- Other Charges: Includes switching, policy discontinuation, rider, or partial withdrawal charges if applicable.
Young professionals have the advantage of time. By considering investment in ULIPs, they can save small amounts for the long term, building funds for various financial goals. Therefore, understanding ULIP benefits and how they align with your needs is crucial. Utilize a ULIP calculator to select a plan suiting your investment requirements and begin saving for your goals.