Life insurance is a product of long-term investment, and it is necessary you invest in ULIPs with the same objective. Unit-Linked Insurance Plans (ULIPs) are insurance products that offer the benefit of investment combined with the security of a life insurance plan. How? It divides the premiums you pay towards it into two. One part goes to life insurance premiums, and the remaining part is invested in money market instruments.
Therefore, investors can reap dual benefits from this scheme. Yet some people invest in a ULIP scheme with a short-term objective.
When you buy ULIP with short-term goals and surrender the policy or stop payment of premiums when the market is volatile, it can jeopardise your financial health. Thus, it is important that you make regular payments of premiums and keep the policy active for a longer duration. Remember, when you discontinue a ULIP scheme, you lose the benefits you reap from investment instruments and the security of life insurance. You are wise enough to know the importance of a life insurance cover, especially in such tough times when life is subject to high risks.
If you are still in doubt, then here are a few reasons why staying invested in ULIPs is a good idea to get better financial benefits.
- Double benefits in a single scheme – ULIP is one financial tool that comes with double benefits of both investment as well as life insurance under a single plan. This helps you save the huge amount of premiums you would probably pay towards two different plans and manage your finances better.
- The benefit of tax exemption –Investments made towards ULIPs enjoy tax exemption under Section 80C of the Income Tax Act. You can claim up to ₹1,50,000 every year on the investments in a ULIP plan. Not just that, but the returns received from a ULIP scheme are exempted from tax under section 10D on the Income Tax Act. Also, the coverage amount received by the nominee on the death of the policyholder is eligible for tax exemption under Section 10D of the Income Tax Act.
- Provides investment flexibility – ULIP offers investment flexibility in various manners. You can switch funds to invest in between different avenues like equity, balanced, or debt funds depending on your risk appetite. It comes with a top-up option that allows you to invest more money in addition to your current investment. The premium redirection feature of ULIP schemes allows you to redirect your upcoming premiums in different fund options.
- Guaranteed sum assured – Not all investment options come with security benefit, but ULIP does. Because of the life cover aspect of ULIP, on the untimely death of the policyholder, the nominees receive a fixed amount. This amount is called sum assured, and it is exempted from tax under Section 10D under Income Tax Act.
- The facility of withdrawal during the lock-in period – Generally, you are not allowed to make a partial withdrawal of the funds during the lock-in period when you invest in a plan. But a ULIP does come with the benefit that allows you to withdraw the amount you need even during the lock-in period.
- Reap higher returns – As compared to the various investment avenues, the potential to reap gains on ULIP schemes is maximum. The reason is the flexibility of switching between funds depending on the risk and volatility of the market.