How Can I Use ULIP To Build Wealth?

A unit-linked insurance plan, or ULIP, offers life insurance as well as investment opportunities. A policyholder's ULIP premium is split into two parts: one covers life insurance, while the other is invested in the money market. For individuals looking to invest for a longer length of time, ULIPs are a better option. The returns on ULIPs are quite appealing to those who are saving for their children's further education, a down payment for a home, working capital for their company plan, or retirement. ULIPs not only protect your finances in the future, but they also help you build wealth.

How Can I Use ULIP To Build Wealth?

We've identified few ways that ULIPs can help you grow your wealth over time:

1. Ability To Change Funds During The Life Of The Insurance

When you invest in ULIPs, you have the option of switching funds at any time during the term. You can choose from a variety of funds based on your investing goals and risk tolerance, such as growth funds, equity funds, balanced funds, large-cap equity funds, income funds, and so on. You have the option to switch funds. All you have to do now is pick a policy, adjust the fund allocation, and keep them going until the end of the term. ULIPs make moving funds a breeze and allow you to exit an underperforming fund.

2. Two-Fold Benefits

Under Section 80 C of the Income Tax Act 1961, ULIPs are entitled to a tax credit of up to Rs. 1.5 lakh. Furthermore, investors can benefit from excellent return rates and appealing returns. In addition, under section 10 of the Internal Revenue Code, the maturity proceeds from ULIPs are tax-free (10D). A ULIP allows you to save more money by deferring taxes and earning market-linked returns.

3. It's A Great Place To Start Investing If You've Never Done It Before

Those who are new to investing can select from a choice of low-risk to high-risk programs based on their financial objectives. To profit from market swings, the funds are handled by skilled fund managers. ULIPs have historically provided a minimum annual return of 8 to 12%, making them a solid alternative for first-time investors looking to make decent returns and build wealth over time.

ULIPs are an excellent long-term investment choice for anyone seeking to build wealth. It is recommended that you speak with a financial expert or advisor before investing your hard-earned money in ULIPs to receive an overview of how the ULIP funds are performing.

4. Encourages Savings

ULIPs assist in instilling the habit of saving, which is critical to wealth creation. ULIP funds have a five-year lock-in period, even though they are short-term investments. From an early age, this instills the discipline of conserving money. You will be charged ULIP charges if you withdraw the money before the deadline.

5. Provides Security

ULIPs are designed to provide both wealth growth and life insurance. This means that the nominees will get a death benefit if the policyholder dies while the policy is active. This ensures that your loved ones and family are taken care of even if you are not present.

6. Allows For More Flexibility

ULIPs take shifting financial obligations into account, giving policyholders more control over their money. The policyholder can change funds and increase or decrease the amount paid toward the life insurance at any time. This means that policyholders can transfer funds from equity to balanced and debt funds and vice versa to meet their immediate financial demands. One of the most notable characteristics of ULIP is its adaptability.

7. Grants Tax Benefits

ULIPs are a wonderful way to save money on taxes. Sections 80C and 10(10D) of the Indian Income Tax Act, 1961 exclude not only the premiums paid on ULIPs but also the ULIP plan returns (under certain conditions). The maturity proceeds of ULIPs will, however, be taxable in certain circumstances after the publication of Budget 2021. The maturity payout will be considered as Long Term Capital Gains (LTCG) and taxed appropriately if the total premium paid throughout the year exceeds Rs. 2.5 lakhs.

Conclusion

A ULIP strategy is a detailed insurance business service that includes both insurance and pension risk in one financial package. When you purchase ULIP coverage, you must make regular premium payments. A portion of your premium payments goes toward insurance coverage, while the remainder is pooled with other policyholders' funds and invested in either equity or debt instruments, depending on your choices.

Also read - How to Choose the Best ULIP Investment Plan?

How To Use ULIPs For Retirement Planning?

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.