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How Safe is it to Invest in ULIP plans?

ULIP is a plan that offers both good returns and additional benefits, but many people think is it safe to invest in ULIP plans. Here's all you need to know.

  • 3,602 Views | Updated on: Jan 10, 2024

When most individuals think of investing, the first thing that comes to their mind is whether it is a safe decision to invest their money in the chosen scheme. Investing is a challenging subject; not only does it require confidence on your side to put your hard-earned money into a plan with the hope of big returns, but it also requires a long-term commitment to reap the most benefits.

In such a situation, it is natural that one should seek out the safest option available. Consider investing in a plan that offers both good returns and additional benefits - is this not what most people strive for? This is where ULIP comes into the picture.

What is ULIP and what does it mean?

ULIP stands for unit-linked insurance plan. The ULIP meaning emphasizes on it being a two-factor investing approach. The first section deals with your insurance needs and it is the section that uses a portion of your premium to help your loved ones plan for their future in the case of your unfortunate demise. The market investing aspect, on the other hand, is based on the portfolio and funds you choose. What’s more - to handle the fluctuating market and increase your profits, you can use the ULIP fund switching option. To further explain why ULIP policy is such a secure and safe investment choice, we’ll go over the following ULIP features in detail.

ULIP Policy Investment Types

If you choose to invest in a ULIP plan, a part of the payment is invested in either equity or debt funds depending on your preferences. You can invest your units in small-cap, mid-cap, large-cap, or multi-cap funds, which can help you create wealth and build assets in the long run.

The Swap Between Equity & Debt

The ULIP policy has a fund switching option that allows you to swap your units from one fund to another in the same plan a couple of times. The insurance provider may impose a fee if you choose this option. It allows you to take advantage of current market conditions which ultimately boosts your profits and increases your earnings.

The Withdrawal Feature

ULIPs typically have a 5-year lock-in period, after which you can withdraw your funds. It’s worth noting that if you cash out your insurance before the maturity date, the policy provider may charge you a surrender fee and return the rest of your money. You may also withdraw your funds partially or totally in time intervals such as annually, monthly, quarterly, and even semi-annually using the investing tool.

Tax Advantages

ULIPs come with a slew of tax advantages. The ULIP premiums are tax-deductible under Section 80C, and the death benefit is tax-free under Section 10 (10D) of the Income Tax Act of 1961. Furthermore, the profits are subject to long-term capital gains taxes. The tax on maturity benefits on the other hand only applies if the total yearly premiums exceed ₹2.5 lakhs and the policy was purchased after February 1, 2021.

Protection for Your Loved Ones

The money invested not only provides financial gains and helps you achieve your own goals but also guarantees that your family is cared for when you are away. A ULIP policy ensures the protection of you and your loved ones. The sum assured provides your family with financial security in the time of need, thereby allowing them to continue enjoying a dignified and comfortable life.

All of the features of ULIP insurance make it a secure investment option that provides financial advantages as well as the protection of your loved ones. Now that you are aware of these details, you can compare and choose one that suits you best!

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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