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Why Do You Need A ULIP Plan - All You Need To Know

As a whole, ULIP benefits make it a fantastic long-term investment option for you and your loved ones by providing dual benefit of life insurance coverage and wealth creation.

  • 4,579 Views | Updated on: Jan 05, 2024

With so many investment options available, determining which one is right for you may be challenging. It can also be intimidating if you’re new to investing, and even more so if you’re familiar with the market but want to switch from your current investment plan to one that would provide you with higher returns. If that’s the case, we have a solution for you in the form of ULIP investment. Now, you might be wondering why to invest in ULIP and what exactly is it?

A Unit-Linked Insurance Plan or ULIP has a 5 year lock-in period and is a mix of investment and life insurance to protect your family financially in the long run and in the event of an emergency. The cost of a ULIP premium is divided into two components. A part of it goes towards life insurance premium, while the remainder is placed in a fund of your choice, such as debt, equity, or a hybrid of the two, based on your risk appetite and financial objectives. As a whole, ULIP benefits make it a fantastic long-term investment option for you and your loved ones.

Reasons To Invest In A ULIP Plan

Life Cover Of Your Choice

You can choose the amount of insurance coverage you desire in a ULIP investment. The minimum Life Cover granted by most ULIPs is 10 times your yearly premium sum. According to the plan and the insurance provider, you may be able to choose a Life Cover value of up to 40 times your yearly premium or more.

Partial Withdrawal And Liquidity

In the event of an emergency or personal needs, you may use ULIP’s partial withdrawal feature.  This provision can assist you with covering immediate costs such as your child’s education, funding for your dream home, vacation, or an emergency. Withdrawing funds partially is usually free of charge.

Switching & Flexibility

here are two fundamental types of funds in ULIP investment: equity funds, debt funds, and a combination of the two is called balanced funds. Investments such as buying stock in firms are included in equity funds; a debt fund is a type of mutual fund that invests in debt instruments; balanced funds invest in both equities and debt funds in equal quantities.

ULIPs enable you to invest in a variety of funds depending on your financial objectives and risk tolerance. You may also use the switch option to shift your money between equity and debt funds depending on their performance. Most insurance policies provide a set number of free switches per year, with a small fee for additional switches.

ULIP Tax Treatment

he taxability of ULIP is one of the most significant benefits of ULIP. You can use Section 80C of the Income Tax Act, 1961 to reduce your tax burden by up to ₹1,50,000 if you can substantiate your ULIP payments. Additionally, the maturity benefit of ULIPs is tax-free under Section 10(10D) of the Income Tax Act. This means that the ULIP tax treatment of when your investment exceeds ₹1.5 lakh is determined by the nature of the fund.

ULIP Calculator

A ULIP calculator is a digital tool for calculating ULIP premiums and estimating the amount of wealth a ULIP plan will create over time. The calculator is simple to use and completely free. It contains several elements, including tenure, projected gains on investment, and financial goal. Thus, it is recommended to use a ULIP calculator to assess premiums and possible ULIP benefits.

After learning about some of the components and benefits of a ULIP policy as mentioned above, it appears to be a good option for those who want to strike two birds with one stone by protecting the future of their loved ones with this hybrid policy. You should research and invest in one that best works for you!

- 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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