How ULIPs Can Solve Two Problems at Once – Insurance and Investment

If you are new to the world of finance or have just started to save and invest, you would know the process can be confusing. With various financial products available in the market, it can be overwhelming to pick the right investment instrument to suit your needs.

After all, you would want to make sure that you invest your hard-earned money in the right instrument and get valuable returns on it. You must prudently chart out your short- and long-term goals and assess your risk appetite. But what if you had access to a simpler solution? Wouldn’t you be happy to get insurance protection and investment opportunities with a single product? If that is what you were looking for, ULIP is the plan you are looking at (unit-linked insurance plan).

What is ULIP?

ULIP is an innovative financial product that fulfils two of your most essential needs – life insurance protection and wealth accumulation. Instead of paying a separate premium for a life insurance policy and investing in different savings plans, you can pay a single premium and get insurance and investment opportunities at once.

A part of the premium you pay for a ULIP plan is used to provide you with life insurance protection. The rest of the amount is invested in different money market instruments like equity, debt and hybrid funds of your choice.

Let us look at how ULIPs meet your two financial needs: insurance and investment.

Undoubtedly, a life insurance policy is an absolute necessity for all. It gives you the assurance that your family’s financial future is secured if something happens to you. Also, a life insurance policy allows you to get significant tax benefits every year. You can get a deduction of up to ₹1.5 lakh in a financial year on the premium paid for ULIP.

ULIP provides you with the same benefits as a standalone life insurance policy, like a term plan but with better flexibility. You can choose the sum assured you want, the insurance term, and the premium payment mode. In general, ULIPs also offer a higher coverage than other life insurance policies; the coverage amount is usually ten times the annual premium amount. Depending on your requirements, you can also get higher coverage.

Apart from insurance protection, ULIP fulfils another vital requirement, i.e., investment and wealth accumulation for future needs. We all have specific financial goals, and we save and invest towards achieving those goals. One of the critical things to know about ULIP is that it has a lock-in period of five years. This means, during this period, you cannot withdraw funds from your savings.

This inculcates financial discipline, and as you keep paying the premium, you can save a significant amount and build a corpus for the future. Also, since ULIP is a long-term investment product, it is advisable to stay invested in it for a more extended period, up to 10-15 years or more, to have the best chance to accomplish your long-term goals and get valuable returns. The earlier you start investing in ULIP, the better, as you would have a longer horizon to get optimum returns.

Final Word

ULIP is an excellent financial product that is a must-have in your portfolio. You can accumulate wealth in the long run while ensuring that your family is protected against uncertainties.

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