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Know Why You Should Stay Invested in Your ULIP Plan

ULIP or Unit Linked Insurance Plan is an insurance plan that offers the dual benefits of investment as well as insurance. Read the article to know 4 reasons why you should remain invested.

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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

Summary:

Your ULIP plan could be your key to long-term financial growth if you play your cards right. Retain your trust in it to reap maximum benefits and to potentially grow your wealth by leaps and bounds. Keep reading to know why you should remain invested in ULIPs.

Content:

ULIP or Unit Linked Insurance Plan is an insurance plan that offers the dual benefits of investment as well as insurance.Known for offering tax benefits and high potential returns and insurance cover, a part of the premium paid is invested. The rest is used for providing insurance cover.

ULIPs are trusted by investors for many reasons, such as;

  • Tax benefits under sections 80C and 10 (10D) on investment, maturity, and withdrawals.
  • The dual benefit of life insurance cover and investment in equity or debt asset class.
  • Switch between equity and debt asset class, a certain number of times for free.

While ULIPs are surely a popular investment and insurance product and come with a lock-in period of 5 years, most experts recommend staying invested for longer to reap the maximum benefits.

Let’s look at some reasons why you should stay invested in your ULIPs even after your lock-in period is over.

Average Out your Costs Better

Most of the costs of a ULIP are paid upfront, also known as front-end charges. After the 5-year lock-in period, and once you stop investing further, the cost spread is averaged out over the years as you remain invested. The longer you are invested, the lower the cost per fund unit you hold. Thus, remain invested in your ULIPs to average out the costs better.

Tax Benefits on Partial Withdrawals

If you’re thinking about withdrawing your ULIP for answering an urgent financial need, you can consider making a partial withdrawal. If the partial withdrawal is not more than 20% of the fund value, you still get tax exemption on the same. ULIPs are one of the few investment and insurance products that come with a partial withdrawal facility and still allowing you to get tax benefits.

Readjust Your Portfolio For Free

Most ULIPs come with free switches up to a certain limit where you can switch between funds without incurring a cost. This allows you to readjust the asset allocation between equity and debt instruments based on your evolving financial objectives and risk appetite. Thus, ULIPs are easy to manage in the long term as your financial objectives or risk appetite may change. For instance, your risk appetite may be higher, and hence your asset allocation could be tilting more towards equity, but as you age, you may want more conservative investment options. You, therefore, may want to make your portfolio more debt-instruments heavy. A ULIP allows you to do that without incurring switching costs.

Equity Tends to Perform Better in the Long-term

While you can choose between equity and debt when investing in ULIPs, most investors opt for equity for the high return potential it brings to your portfolio. Equity as an asset class is known to perform better if you stay invested for the long term. This is because it’s better able to tide through the market volatilities and grow steadily.

You have aptly chosen the ULIP plan as an investment and insurance tool. Now, stay invested in it for a longer tenure to get the most of its benefits and achieve your financial goals.

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

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- A Consumer Education Initiative series by Kotak Life