Financial security is on the minds of many and there are various ways to achieve it. Buying a ULIP is one of them. ULIP plans allow policyholders to seek the benefits of insurance as well as investment in a single policy.
They are easily accessible policies offering dual benefits, which may make them appear enticing for newer investors who seek a life cover as well as market-linked wealth creation. Before taking a look at why you should consider ULIPs for your financial security, let’s take a look at the meaning of ULIPs and how these plans work.
What are ULIPs?
Unit-linked Insurance Plans, or ULIPs, are relatively complicated as compared to regular life insurance plans. This is possibly due to its dual benefit design. These policies have two aspects to them. The first is life insurance. This is, arguably, the simpler side of ULIP, meaning it is easier to understand as it is similar to most other life insurance plans. Here, a part of the premium you pay is directed towards the sum assured and it offers you a life cover. This life cover ensures that your family’s financial well being is taken care of, in the event they were to suffer financial distress.
The other side of ULIPs is the investment aspect. Here, the other part of your premium is directed towards wealth creation. This is achieved by putting your money into funds and allowing you to earn market-linked returns. You can use an online ULIP return calculator for estimates of your plan’s returns.
Financial Security With ULIPs
Once you understand how ULIPs function, you can consider investing in these plans. Here are a few ways ULIPs can help you achieve long-term financial security.
Market-linked returns
Many people are keen on diving into market-linked returns, but they either do not know where to start or are not willing to take the risk with standalone investment schemes. For such people, ULIPs can prove to be the right option. These plans come with a unit-linked aspect, as suggested in the name. It allows people to maintain a life cover, which is considered fundamental by most, while also indulging in market-linked wealth creation. Since fund managers are assigned to your investment, you may not require a hands-on approach when creating wealth through ULIPs.
It allows you to maintain a life cover alongside earning market-linked returns and build wealth for your future as well as that of your loved ones.
Option of funds
When investing with ULIPS, you are offered a choice of funds to choose from. Broadly, these funds can be categorised as equity, debt, and hybrid funds. While debt funds are known to be low risk but low yield, equity funds are quite the opposite. They are popular for being high yield, but they are also risky as they are highly volatile. Hybrid funds offer a balance of these two and are ideal for policyholders who seek a balanced approach.
With the availability of these choices, you can choose your pace of wealth creation as per your risk appetite. To stay protected against risks, it is advisable to have a balanced portfolio. Include a healthy mix of equity, debt, as well as hybrid funds to ensure that your portfolio is protected against risk while bringing you ample growth opportunities. A balanced portfolio is essential to ensure that your wealth creation opportunities are protected against risk.
Power of compounding
ULIP returns showcased by calculators may help you understand that these plans work best in the long run,thanks to the power of compounding. Put simply, your ULIP earnings are reinvested into the market, offering you a bigger investment each time. This makes ULIPs ideal for long-term investments.
As a policyholder, it is advisable for you to think about your long-term goals when buying a unit-linked insurance plan. Aligning these plans with your long-term ambitions, such as child education or retirement, can help you create a better strategy for maintaining the plan.
Tax Benefits
ULIPs offer tax exemptions on premiums. Thus, it allows you to create a long-term tax-saving strategy with these plans and thus, save money. You can consult your tax advisor to understand the tax-saving benefits of ULIPs better.
If market-linked investments are as important to you as life insurance, and you want to secure your future as well as that of your loved ones in the long term, Unit-linked Insurance Plans may be the right option for you. Remember that these plans tend to work better in the longer duration, so choose your plan carefully and avoid surrendering it.