As an Indian, you might come across different financial instruments that give you the opportunity of investments. Financial instruments such as fixed deposits, recurring deposits, PPF and mutual funds, are some of the common and popular choices of investments opted for by many Indians. Some of these investment options are safe, but they do not provide higher returns. While the others might provide you with returns that might not match your expectations. ULIP is one of the safest and most preferred mode of investment for many Indians nowadays. What exactly is a ULIP policy? And why is it preferred by many Indians? Read on to know more.
What is ULIP?
A ULIP or unit linked insurance plan is a type of life insurance policy that provides double benefits: investment and insurance. These benefits are provided to you in a single policy. A part of the premium that you pay for the policy gets invested in market-linked funds. The other part of the premium is invested in providing life insurance cover to your loved ones. You get tax benefits on the premium that you pay for the policy. If you invest in a ULIP policy for the long run, the benefits that you gain are much higher and much more beneficial.
Why do Indians prefer ULIP?
If there are other conventional modes of investments such as mutual funds fixed deposits or ELSS, why would Indians want to invest the money in ULIPS? Listed below are some of the reasons why Indians prefer ULIPS nowadays:
- Life insurance cover
Life is full of risks and there is no predicting when an unfortunate circumstance might take place. Not everyone can be financially prepared to cope up in the aftermath of such situations. Therefore, investing in a ULIP makes much more sense as you get the benefit for life insurance cover for your loved ones. They can use the death benefit for any immediate expenses or to maintain financial stability for a certain period of time.
- Tax benefits
There are different tax benefits that you get to enjoy when you invest in a ULIP. The premium that you pay for the policy is tax exempted under section 80C of the Income Tax Act. Premium payments up to ₹1,50,000 are tax exempted. Similarly, the maturity benefits that you or your family will get once the term of the policy ends are also eligible for tax deductions under section 10(10D). Any partial withdrawals that you make from your policy are also tax exempted under the same section of the Income Tax Act. These tax exemptions help you in saving money
- Long-term investment benefits
ULIPs are designed in such a way that the benefits that you can enjoy grow more in the longer term. When you invest in ULIPs policy for a longer duration, the returns accumulate more, and you could get a higher pay out once the policy matures. If you were to invest in a ULIP for a shorter duration, the returns may not be what you would expect and might not help you in accomplishing your life goal. Long-duration investment means better ULIP performance. It helps you in correcting and regaining your investments in the long run.
- Switching option
When you invest in a ULIP, you have the option of investing in equity funds or debt funds. Equity funds are a high-risk, high return fund option. On the other hand, debt funds are low-risk, low to medium return funds. Many people tend to invest mostly in equity funds because of the higher returns. But they are more exposed to market risks, which could impact your investments and give you lower returns.
In ULIPs, you have the option of switching your investments from one fund to another. So, if your risk appetite is low at a certain point of time; you can reallocate some part of your investments from equity funds to debt funds and ensure that you keep getting steady income without your investments getting highly impacted.
These are just a handful of reasons why Indians are now preferring to invest in ULIPs compared to other conventional modes of investments. you can get in touch with a financial expert or insurance advisor to understand more about benefits and types of ULIP.