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ULIPs Investment – A Boon or Bane?

ULIPs are an ideal option for a long-term investment that will help you achieve your long-term financial goal. Read here to know whether ULIP is a boon or bane.

  • 4,737 Views | Updated on: Jan 04, 2024

Unit-Linked Insurance Plans (ULIPs) allow investors to participate in bonds, stocks, or mutual funds while also providing risk coverage.

The performance of the investment portfolio affects how much money ULIPs return. In addition, investors are responsible for bearing the risks involved with such investments. Therefore, it is wise to take your risk tolerance and future financial needs into account while looking for the best ULIP plan for investment.

Many individuals argue whether these items are a blessing or a curse because the rewards depend on market conditions. Read ahead to know if ULIPs are a boon or bane to you.

What is ULIP?

ULIP is a multifaceted life insurance plan blend of life insurance and investment. If you are a policyholder and want to pay premiums regularly, you spend part of it as life insurance and invest the rest in financial instruments.
In this manner, the best ULIP plan for investment can help you simultaneously grow your money and maintain your financial security during times of uncertainty. While selecting the best policy, you should compare and evaluate essential factors, including cover amount, investment tenure, and tax advantages. Then, you can consider the alternative for effectively organizing your future if it satisfies all your requirements.

What Makes ULIP Investment a Boon?

In the ULIP, your investments are subjected to market fluctuations. So, what are the benefits of the best unit-linked insurance plan investment? Let’s check them out:

Flexibility

You never know when your financial obligations will change, and you need to make modifications. The best ULIP plan for investment offers the flexibility to switch between the funds among cash, debt, or equity. Additionally, with a positive movement of stocks, policyholders can choose the monthly program for monitoring the fund’s performance.

Partial Withdrawal

Investors are permitted to make partial withdrawals once the lock-in period of 5 years has ended. These withdrawals give individuals a choice and a tax-free way to satisfy specific financial goals or urgent liquidity needs.

Good Returns

With a reasonable ULIP rate of interest, investors can expect good investment returns depending on the fund they choose. For instance, if a person selects a fund that allocates a sizable amount of its corpus to stock market investments, the investor can earn significant returns on his ULIP investment if the stock market does well.

Tax Benefits

₹1,50,000 in taxes from the insurance premiums they pay for ULIPs. Keep your ULIP policy active for another five years to benefit from the tax break.

Are There Any Disadvantages of ULIP?

Yes, ULIPs can also be a bane. Let’s look at the points to know its disadvantages:

  • ULIPs are not a viable alternative for short-term investments because they are vulnerable to market swings.
  • Compared to a standard term plan, it is relatively expensive; the premium includes several expenses, including administration fees and investment costs. As a result, it might be challenging for investors to redeem their assets when the lock-in period is over.
  • Additionally, some ULIP providers have excessive policy charges, which raise the investment’s initial cost.

When weighing the benefits and drawbacks of ULIPs, individuals who want high returns, tax benefits, and life insurance have a strong chance of success if they invest in ULPs.

They can also benefit from market-linked gains with ULIPs without actually investing in the stock market and life insurance bonuses. It also guarantees complete openness on the investment value, the estimated rate of return, and the entire policy term. Consequently, investing in ULIPs is always a wise choice.

It can provide more varied return options and other wealth-generating prospects. Those with long-term financial plans for insurance and asset creation might purchase ULIP plans to protect their families from emergencies. Additionally, the best unit-linked insurance plan helps with retirement, children’s education, and other financial objectives.

- 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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