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ULIPs: A Balance Between Insurance and Investment

  12/18/23 6:41 AM

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Investing is not just about wealth creation. It also helps you secure the financial needs of your loved ones, even in your absence. Unit Linked Insurance Plans, better known as ULIPs, are a complete solution in this regard. ULIPs provide the right balance between insurance and investment, allowing you to grow your wealth while also safeguarding your family.

In a ULIP, a part of your premium is invested into market linked funds. These funds grow according to the market performance. A well performing market can lead to excellent returns in the long run.  Here is a look at some of the core features of ULIPs that can help you financially secure your future.

Extensive Life Cover to Secure You and Your Family

One portion of the premium amount you pay in a ULIP goes into securing your life cover. The life cover or sum assured is the money your family (nominees) get in case of your unexpected demise. Some ULIPs even offer enhanced life cover to further safeguard your spouse and children. 

There are two types of ULIPs that are currently available in India. In Type 1 ULIPs, your nominees will either get the sum assured or the money that has been invested (fund value), whichever of the two is higher, as the final life cover amount. On the other hand, Type 2 ULIPs provide both the sum assured as well as the current fund value as the life cover, drastically increasing the life cover your family will receive.

Market-linked Investments for Wealth Generation

Another portion of your premiums is invested into market-linked funds. The value of your funds will rise and fall depending on the performance of the market, so keep in mind that none of your returns are assured. You can either self-manage your funds or allow the insurer’s investment specialists to handle your investments for you. ULIP investment is either made in equity funds, debt funds or hybrid funds. Generally, your ULIP investments can only be put into funds offered within the policy’s terms.

Flexibility of Investments as per Risk Appetite

Each person has a different appetite for risk. If you are fine with high-risks for a potentially higher reward, then you can invest in equity funds. For low and moderate risk appetites, invest in debt and hybrid funds respectively. The best ULIP plan for you will be based on your risk tolerance level.  

Ability to Switch Funds to Maximize Returns

The best Unit Linked Insurance Plans are known for providing diverse investment fund options. You can switch between these funds whenever you want. ULIPs become a good investment avenue if you know how to switch funds at the right time. For example, if the market is performing poorly, it is wiser to switch your funds from equity to debt to avoid major losses. On the other hand, when the market is performing exceptionally well, equity funds are the way to go for the highest returns.

Long-term Investments with a Lock-in Period

Most ULIPs have a five-year lock-in period during which no money can be withdrawn from the invested funds. However, once the lock-in period ends, you can make partial withdrawal based on your policy T&Cs. This allows you to always have cash on hand for emergency situations. And of course, once your policy ends, you will receive the entire fund value as maturity benefits in a lumpsum payout. This payout can help you fulfil your financial goals and ambitions. 

Attractive Tax Benefits on Premiums, Life Cover and Maturity Benefits

Just like any other insurance policy, ULIPs are also subject to various tax deductions and exemptions. According to Section 80C of the Income Tax Act, you can get tax deductions of up to Rs 1.5 lakhs per year on premiums paid towards your Unit Linked Insurance Plan. Your ULIP maturity benefits can also be tax exempt if they meet the terms & conditions of Section 10(10D) of the Income Tax Act. However, if your ULIP does not meet the section’s T&C, then your maturity benefits will be taxed as capital gains.

Death benefit for a ULIP is always tax exempt according to Section 10(10D), so you family will always get the full amount without deductions. Keep in mind that tax laws in India are subject to change based on Government rulings.

ULIPs: The Middle Ground Between Investment and Insurance   

ULIPs are considered a comprehensive plan for insurance and investment needs. Edelweiss Life Insurance's ULIPs provide seven different funds. You can opt to manage the funds from your end or let our team manage them for you. You can start regularly investing in the plan with a fixed small amount. Check out Edelweiss Life- Wealth Secure Plus if you want a comprehensive ULIP devised to help you achieve complete financial independence!


Neha Panchal - Financial Content Writer

Neha used to be an Engineer by Profession and Writer by passion, which is until she started pursuing full-time writing. She's presently working as a Financial Content Writer, with a keen interest in all things related to the Insurance Sector.

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