Should I Invest In A ULIP To Build Wealth?
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The Unit Linked Insurance Plans are insurance policies with a dual purpose of rendering investment benefits and insurance cover. They are similar to mutual funds, except that they also render life cover. ULIPs are reliable financial options that help the investor generate wealth in the long run. Let us explore some good reasons why you should invest in a ULIP plan to build wealth.
Reasons to Invest in a ULIP Plan for Wealth Creation
ULIP investment is the best bet for those wishing to develop a disciplined investing habit. It is a long-term investment option that provides tremendous benefits for the investors. If you are confused as to whether you should invest in a ULIP or not, read through its benefits.
1. Flexibility
The ULIPs are very flexible and offer the option of switching funds during the policy period. It allows the insured to remove their investment amount either fully or partially from one fund to another. They are also easy to operate. You only have to choose the policy, change the fund allocation and wait for the policy to end to reap its long-term benefits.
2. Wealth Protection
Besides wealth creation, ULIPs also play a great role in wealth protection through their riders and other inbuilt features. Some ULIPs offer lump sum assured amounts on the insurer's death to meet the needs of the family and their children after their demise. The investment company also continues to pay the premium on the funds on behalf of the insured. Thus, they offer a regular income for the family, even after the policyholder's death for the rest of the policy period.
3. Tax-Savings
By entering into the ULIP plan, it is possible to save money on taxes, as these investments allow tax deductions per Section 80C of the ITA. The money that one invests in the ULIP gets deducted from the total taxable income. This reduces the Income Tax you owe to the government, helping in additional savings.
4. Better Returns In Comparison to Other Investment Products
This is one of the biggest reasons why ULIPs are considered an apt option for wealth creation. They have a great potential to reap good returns, as the premium paid by the individual is invested in different asset classes. It also allows the insured to opt for different funds yearly, depending on their performance.
5. Flexibility to Adjust the Investment Amount
Under the 10% taxation rule, the insurers can either increase or decrease their investment in the ULIP. Those who invest early can reap a better income, and by keeping the sum assured high will save the insurers from buying new plans as income improves. Even if they want to increase their annual investment in the ULIP in the future, the investment will not be taxable.
Apart from helping to save money and create wealth, the ULIPs are highly customizable investment options. Investors are free to
- change their portfolio,
- alter fund allocation,
- and even transfer their funds to an entirely new fund option within the ULIP.
Though they use multiple asset allocation strategies, investors will still have great control over their portfolios. Investors can also readjust the fund allocation to mitigate risk.
Bottom Line
ULIPs best suit individuals having a long-term financial plan of insurance and wealth creation. Regardless of the reason for adopting ULIP, be it for retirement benefits, for a child’s education, or other financial goals, ULIPs work till maturity and offer the benefit of protection and savings in a single plan.
Also read: Are ULIPs Equal to Mutual Funds?
