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Why Should I Invest in ULIP?

The earnings from a debt fund in ULIP is tax-free for investors, setting it apart from all other market-related investments. Read more to know about why should you invest in ULIP?

  • 3,317 Views | Updated on: May 17, 2024

Investment options have gotten people’s attention like never before in this day and age of financial planning. While some people choose to adhere to traditional investing instruments, others appear eager to try newer schemes. One such popular plan is ULIP. It stands for Unit-Linked Insurance Plans.

How Does ULIP Work?

Depending on your risk tolerance, ULIPs provide you with the option to invest your money in a variety of equities or debt funds. The returns are tax-free under Section 10(10D) of the Income Tax Act, 1961 even though the premiums you pay are deductible from your taxable income under Section 80C#. This is how ULIP functions.

  • You must choose the level of life insurance, premium amount, premium payment method, and policy term to match your goals for financial security and savings before you may participate in the capital market with ULIPs.
  • The choice of an upfront, lump sum payment or recurring payments on an annual, half-yearly, or monthly basis, as well as the frequency of the premium instalments, can be made at your convenience.
  • A portion of your premium provides you with a life insurance policy.
  • Depending on your selections, the remainder of your premium is invested in the stock market using equity, debt, or hybrid funds.
  • Equity invests your funds in stocks. Debt funds invest your money in bonds, treasury securities, and other safe investment vehicles.
  • The value of your coverage is determined by the capital put in these funds. Your possibilities of earning bigger returns increase as you invest over a longer period of time.
  • Your nominee will receive the sum assured in the event of an unfortunate event during the policy term to realise their dreams.

ULIP is a scheme that provides both insurance and ULIP benefits. In this plan, the payment is split into two parts:

One is used to provide life insurance. The other is used to invest money in market assets.

The earnings from even a debt fund in ULIP are tax-free in the hands of the investor, setting it apart from all other market-related investments. While everyone appears to be on the hunt for the best ULIP plan, it begs the issue of why one should invest in it. If you’re unsure whether or not you should put your hard-earned money into a ULIP plan, we’ve put up a list of advantages to help you make an informed decision.

Here's why you should invest in Unit-Linked Insurance Plans (ULIPs))

Optimise Your Growth

Investors can choose from several sources in ULIPs, such as debt funds, equity investments, and balanced funds. Depending on your risk tolerance, you can pick one of these options.

If you are a risk-taker, you can ensure higher returns by investing in equity funds. You can also invest in debt funds if you are risk-averse. Choosing between several funds depending on market conditions is a key advantage of ULIPs. As a consequence, you may be able to earn a higher return on your investment.

ULIP allow you to optimize your returns, and it is unlike any other investment plan where you can not only get insured but also optimize your returns based on market conditions.

Increased Returns

When compared to other investment options, ULIP investment returns offer a high potential for maximum financial benefits. These high results may be achieved due to the clear flexibility of equity and debt funds. Similarly, investing in ULIPs qualify you for certain prizes and incentives. Insurance firms give bonuses in the form of revenue multipliers or loyalty bonuses.

Tax Exemption for ULIP Investments Under 80C

ULIPs is subject to tax deductions under Section 80C of the Income Tax Act. Annually, an investor can receive up to ₹1,50,000 on ULIP investments. Likewise, under Section 10D of the Income Tax Act, the profits you get at the maturity of your ULIP insurance are tax-free. Furthermore, under Section 10 (10D) of the Income Tax Act, the sum received by the nominee upon the insured’s death is tax-free.

Riders Under ULIPs

ULIPs are one of the most effective market-linked investment solutions since they allow you to buy supplementary life insurance for your loved ones through rider options such as critical illness, accidental death, disability, etc., thereby ensuring that they are taken care of even after you are no longer there.

Things to Consider Before Buying ULIP

Several things should be considered when purchasing a unit-linked insurance plan. Some of them are as follows.

Assurance’s Reliability

Long-term investments, or ULIPs, are a wise choice. Determining whether the insurance provider can offer sufficient protection in the event of future threats or obligations is crucial. Additionally, the insurance provider will make market investments on your behalf. Therefore, before investing in a ULIP, look into the insurance company’s track record and customer testimonials.

Select the Maximum Sum Assured Option

A sum guaranteed is a lump-sum payment given to the policyholder’s nominee if the policyholder passes away unexpectedly during the ULIP’s validity period. When a ULIP is purchased, the sum insured is determined. You must select a maximum sum covered because this money will be utilised to support your family and loved ones after your passing. The insurance expert can provide you an example of the prospective premium payment and the fund value that has grown as a result of your ULIP investment. You can also calculate your refunds using an online ULIP calculator.

Keep a Close Eye on the Charges

A ULIP’s price varies depending on the insurance provider. The following are some of the most typical expenses related to ULIPs:

  • Administration fees for policies
  • Fees for premium allocations
  • Murder charges
  • Fees for Riders and Fund Administration

When is the Best Time to Invest in ULIPS?

When you are working toward your objectives, whatever they may be, and have a reliable income and few responsibilities, it is an excellent time to invest in ULIPs. You aren’t required to invest the same amount each year, and you can even change your premium allocation each year. You could select from a range of funds with different equity exposures based on your risk profile. Selecting a fund with a bigger equity exposure may be necessary if you want to achieve higher returns. You can also make use of the tax-saving options for ULIP premiums and maturity amounts under Sections 80 C and 10D of the IT Act if you are a salaried professional and even a mid-level executive at that.

Wrapping Up

Investors who formerly preferred to invest in FDs are gradually switching to mutual funds and insurance. A greater number of people are choosing ULIPs as a result of changes in investment patterns and the availability of tools that are linked to the market, such ULIPs. Every earner must typically have coverage for at least 10 years of income. Ten times the annual premium is offered as life insurance by ULIPs. The policyholder becomes immune to market volatility as a result. They provide transparency, appropriateness, safety, returns, liquidity, and safety. Choosing to invest in ULIPs is a prudent move.

- 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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