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What are the Uses of ULIP?

Unit-linked insurance plans have several uses, from short-term financial goals to securing your and your children’s future. Know more about ULIP uses here.

  • 29,123 Views | Updated on: May 17, 2024

You are on a financial journey and looking for a versatile tool that not only helps you grow your money but also offers protection. Well, you are in luck because today, we are going to explore the world of Unit Linked Insurance Plans, or ULIPs. These financial instruments are like a Swiss army knife for your money, offering a wide range of benefits and uses that can cater to various financial goals.

Key takeaways

  • ULIPs are a hybrid financial product that provides a dual benefit of insurance coverage and investment opportunities.
  • A good ULIP plan will help you build a retirement corpus in the long run.
  • Unit-linked child plans invest your money in the stock markets, which has the potential to deliver higher returns.
  • ULIPs allow you to withdraw money partially to meet fund requirements at various stages in your life.

ULIP is a life insurance product with a life cover and an investment option. A portion of the premium is invested in various products such as mutual funds, shares, bonds, etc., whereas the remaining portion is paid for a life insurance policy. You may choose between risk cover and investment per your needs and preferences. Numerous advantages of ULIP can help the policyholder bear the fruits of their ULIP investment and enjoy the tax benefits. This is because under Section 80C unit linked investment plan allows the policyholder to avail themselves of tax exemptions.

Continue reading this detailed guide on unit-linked investment plans, the different advantages of ULIP and how this plan is useful.

Uses of ULIPs

When you invest in the ULIP fund, you can plan and achieve various life goals like the ones mentioned below:

Plan for Retirement

Fortunately, more people today understand the importance of planning retirement. Scientific developments have increased life expectancy, which makes it necessary to ensure you have sufficient funds to last you through your retirement. Increasing healthcare expenses due to rising inflation also makes it important to build a sizeable retirement corpus. A good ULIP plan will help you build a retirement corpus in the long run.

Some portion of the premium can be invested in shares. Historically, stock markets have delivered higher returns over a longer duration, making ULIP an excellent product. Investing early to assume higher exposure in the equity market is recommended. As you age and get closer to retirement, you may move your investment to safer products like bonds. Further, when you retire, you may choose immediate or deferred annuity at your convenience.

Secure The Future Of Your Children

Education expenses are constantly rising. The cost of pursuing higher education in the future will be significantly more than the current expenses due to inflation. Therefore, you must invest in a way that delivers returns and provides inflation-beating profits. Unit-linked child plans invest your money in the stock markets, which has the potential to deliver higher returns, which in turn is beneficial to secure your children’s future.

Meet Critical Milestones

You may require funds to meet certain milestones, such as children’s higher education, a wedding, or a business venture. ULIPs allow you to withdraw money partially to meet fund requirements at various stages in your life. This ensures you have funds when needed and do not face any financial difficulties to meet these critical milestones.

Cost-Efficiency

In the past, ULIPs were criticized for their high charges, but in recent years, regulatory changes have reduced these costs significantly. ULIPs now offer more cost-effective investment options than earlier versions, making them a more attractive proposition for investors.

Wealth Accumulation and Long-Term Planning

ULIPs are designed for long-term investment, making Tax Benefitsthem suitable for wealth accumulation and fulfilling long-term financial objectives. They encourage disciplined savings and provide financial security, helping policyholders plan for significant life events like education, marriage, retirement, or buying a house.

Transparency and Disclosure

The Insurance Regulatory and Development Authority of India (IRDAI) has mandated stringent guidelines for ULIPs, ensuring transparency in their operations. Insurance companies must provide detailed information about charges, fund performance, and the allocation of premiums, helping investors make informed decisions. This transparency fosters trust and confidence among policyholders.

Benefits of Unit Linked Insurance Plans

Whether you are planning for long-term financial goals, securing your family’s future, or simply seeking wealth creation opportunities, ULIPs can be a valuable addition to your financial portfolio. Here are numerous benefits of ULIPs and why they have become an attractive choice for investors.

Dual Benefits of Insurance and Investment

ULIPs are a hybrid financial product that provides a dual benefit of insurance coverage and investment opportunities. A portion of your premium goes towards providing life insurance coverage to protect your loved ones in case of an unfortunate event, while the remaining portion is invested in various funds based on your risk appetite. This unique blend allows you to address both your protection and wealth-building needs simultaneously.

Flexibility in Investment Choices

One of the key advantages of ULIPs is their flexibility in terms of investment choices. Policyholders can opt for different types of funds, such as equity funds, debt funds, or a combination of both, based on their risk tolerance and financial goals. This flexibility enables you to tailor your ULIP to align with your investment objectives.

Transparency and Control

ULIPs provide transparency in terms of where your money is invested. Policyholders receive regular updates on the performance of their investments and can make informed decisions about switching between funds to optimize returns. This level of control and transparency empowers investors to actively manage their ULIP portfolio and adapt to changing market conditions.

Tax Benefits

ULIPs also offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act in India. Premiums paid towards ULIPs are eligible for a deduction of up to ₹1.5 lakh from your taxable income under Section 80C. Additionally, the maturity proceeds and death benefits received from ULIPs are usually tax-free under Section 10(10D), making them an attractive tax-efficient investment option.

Long-Term Wealth Creation

ULIPs are ideally suited for long-term wealth creation. Since they come with a lock-in period, they encourage disciplined investing and discourage impulsive withdrawals. This long-term commitment can lead to the accumulation of substantial wealth over the years, making ULIPs an effective tool for achieving financial goals such as buying a house, funding your child’s education, or planning for retirement.

Liquidity Options

While ULIPs are designed for long-term investments, many policies offer partial withdrawal options after a certain lock-in period. This liquidity feature can be beneficial in case of financial emergencies or other unforeseen expenses, providing access to a portion of your invested capital without surrendering the entire policy.

Wealth Transfer and Estate Planning

ULIPs also facilitate wealth transfer and estate planning. In the unfortunate event of the policyholder’s demise, the death benefit is paid to the nominee or beneficiary, providing financial security to the family. This feature ensures that your loved ones are cared for and can help mitigate potential financial burdens during challenging times.

Parting Words!

Unit Linked Insurance Plans (ULIPs) serve many purposes on the financial horizon. They combine the benefits of investment and insurance, making them versatile tools for wealth creation, tax-saving, goal-based savings, and insurance coverage. ULIPs offer flexibility, transparency, and the potential for substantial returns, making them a valuable addition to your financial portfolio.

However, it is essential to carefully assess your financial goals and risk tolerance before investing in ULIPs and consult with a financial advisor to make informed decisions tailored to your specific needs.

- 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

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