Major Reasons Behind The Popularity Of ULIPs

A ULIP also includes a Life Cover benefit that can be adjusted based on several life-cycle stage milestones. Another perk is that ULIP premiums are tax-deductible under Section 80C. Furthermore, under Section 10 (10D) of the Income-tax Act, the returns earned on maturity are remained tax-free up to a certain threshold limit, which benefits ordinary investors. A ULIP provides several advantages. It's worth mentioning, however, that with a ULIP, the goal should be to stay involved for a lengthy time horizon rather than the minimal five-year lock-in period.

The majority of financial advice we receive from well-intentioned parents, relatives, or friends focuses on risk-averse investments such as bank FDs, PPF, NPS, post office savings plans, or traditional insurance products. Except for a handful who mention mutual funds or equities, most of the advice is risk-averse. As a result, it should not surprise you if someone suggests that Indians are cautious investors.

Major Reasons Behind The Popularity Of ULIPs

Below are a few reasons behind the popularity of ULIPs:

• You Decide On Your Risk Tolerance

ULIPs invest a portion of their money in equities, debt securities, and money market instruments, among other investment channels.

You can select an asset class to invest in from this menu. A risk-averse individual may pick a combination of debt and stock to get great returns with low risk, while a young individual with an ambitious bent may choose to invest exclusively in inequities.

• You Have The Choice To Make At Any Time

While keeping market trends in mind, an investor can migrate from one asset class to another or adjust the investment ratio.

Because the markets are on the rise, you can adjust the percentage and shift some of your allocations to stocks if the majority of your allocation is in debt instruments. During recessions, you can withdraw all of your investments from equities and put them into safer assets like debt and money market instruments.

ULIPs outperform mutual funds in this area. Mutual funds limit your ability to adjust your investments because they follow a pre-determined allocation strategy.

• Significant Tax Advantages

Tax savings is one of the most attractive features of Unit Linked Insurance Plans. There are advantages to both investments and withdrawals.

The premiums you pay for this plan are tax-deductible under Section 80C of the Internal Revenue Code. There is, however, a legal maximum, which is now INR 1.5 lakh. This plan allows you to withdraw money in three different ways. A tax-free death benefit is paid in the event of your death.

You receive either the promised benefit or the value of the unit-linked investments when the plan matures (whichever is higher). It is tax-free under section 10(10D) of the Income Tax Act. After the five-year lock-in period has ended, you can make partial withdrawals of up to 20% of the fund's value. Tax-free withdrawals are available.

• You Can Upgrade Your Plan

You can add further coverage to your Unit Linked Insurance Plan. They are funds that you can invest in in addition to your current payment to benefit from a high-performing plan. A top-premium up's allocation charges might range from one to three percent. Only if the total premium does not exceed 10% of the sum assured is the top-up eligible for deductions under Section 80C of the Income Tax Act.

• Nature Is Long-Term

This product is one of the best when it comes to long-term financial planning. You can plan to use the returns to accomplish crucial goals like a foreign school, marriage, or real estate acquisition with a five-year lock-in period.

You can make partial withdrawals from the fund once the lock-in period has ended. The withdrawals will help you achieve your objectives, and once the plan matures, you can use the large sum provided to you to achieve long-term objectives and live a happy life.

Conclusion

Look no farther than a Unit Linked Insurance Plan if you're seeking a financial solution that can help you achieve long-term wealth goals while also providing life insurance.

If you have a life insurance policy with add-ons like medical insurance and critical illness riders, you may be eligible for tax benefits.

Also read: 5 ULIP Charges You Must Know About

Are ULIPs A Good Investment Option For Long Term Wealth Creation

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.