Do ULIPs Help In Saving For The Long Term?
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A Unit Linked Insurance Plan (ULIP) is a type of insurance that combines the benefits of an investment plan and life insurance into a single policy. It offers life insurance as well as the stock market, debt, or both market benefits. When your premium is invested for a lengthy period of time, ULIPs are the most efficient. ULIPs include a number of benefits and features that can help you save for the future, whether it's for your child's school or marriage, retirement, or something else. The following are some of the reasons why ULIPs can aid in long-term savings.
Do ULIPs Help In Saving For The Long Term?
Below are a few ways in which ULIP helps in savings for the long term:
1. Lock-In Period
ULIPs have a five-year lock-in period, which might help you develop a habit of disciplined investment. Because ULIP is a long-term insurance contract, purchasing a single ULIP is beneficial. Though the ELSS has the lowest lock-in period of three years, the money deposited in the first year is only available in the fourth year. As a result, any investment, whether made monthly through systematic investment plans (SIPs) or annually as a lump sum, can only be withdrawn after three years. The lock-in period for ULIPs begins when the policy is issued. The premium can be paid in installments or in one big sum each year.
2. Possibility Of A Higher Return When Compared To Peers
Because of their equity advantage, ULIPs have the potential to outperform any other insurance product. ULIPs invest your premiums in a variety of asset types via various funds. Tax-saving funds have traditionally provided double-digit returns, but if you're making a one-time investment, you'll need to find a new fund each year. Renewals of ULIPs provide tax benefits. The amount due at maturity is determined by the performance of the stock market over time. Endowment plans, on the other hand, are structured to pay out a lump sum after a set period. Even though such regulations provide capital protection, the profits produced do not outperform inflation.
3. Flexibility
ULIPs are very adaptable since you can change funds during the policy duration. It's the only financial tool that allows you to have this much control. It allows users to transfer all or part of your asset across funds as the insured. Depending on your needs and the performance of the fund, you can select any of them. The funds in this group include development, diversified, capital, and income funds. In fact, every year, you can make three to four free moves. To enjoy long-term benefits, all you have to do is choose a policy, change the fund allocation, and stick with it until it expires.
4. Dual Advantage
Term insurance providers offer life insurance and tax advantages, but they don't give out any money. In terms of giving a tax credit of up to Rs 1.5 lakh per Section 80C of the Income Tax Act of 1961, ULIPs might be beneficial especially goals. It offers a minimum sum assured of 10 times the annual insurance to investors under the age of 45.
5. Inexperienced Investors
Mutual funds and health insurance are increasing in popularity among FD consumers. Mutual fund sheets of paper hit a record high of 6.5 crores at the end of November, as per the Securities and Exchange Board of India's most recent data. A market-linked instrument, such as a ULIP, makes sense for novice investors who are adjusting their investing habits. Long-term, the returns are comparable to mutual funds, if not identical. A first-time investor looking to invest in the stock market with a low-risk approach might choose from several market-participating programs. He just needs to know what his investment horizon is and what his goal is.
Conclusion
As a consequence, choosing the right investment option for your needs might be difficult with so many options available. As a result, you might wish to think about a ULIP as an investment scheme because it offers a solid combination of insurance bandwidth and high returns.
You may also like to read - Why Are Unit Linked Insurance Plans Popular?
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
