what are the benefits of investing in ULIP?

Let’s take the example of Swapnil, an IT professional who is highly aware of the importance of investment and savings. He knows that his wealth growth has to be greater than the inflation rate to maintain his family’s standard of living. However, he is also a father of two young children, which drastically reduces his appetite for high-risk financial products. Moreover, Swapnil also wants a life insurance plan to protect the financial well-being of his spouse and kids.   

Swapnil’s example will resonate with any person who has to split their finances between family and their personal wealth growth. The dilemma of choosing between investments or financial security can be quite stressful, especially if you’re the sole breadwinner of a household. This is where ULIPs come into the picture. ULIPs (Unit-Linked Insurance Plans) are life insurance products that also offer an element of market-linked investments. The hybrid nature of these insurance products can help you secure your family’s financial security while also focusing on gradual wealth growth! 

What is a ULIP? 

In a Unit-Linked Insurance Plan, your premiums not only go towards your life cover but are also put into market-linked funds. These funds can either be equity (direct stock investments), debt (government/corporate bonds), or balanced (divided between equity and debt securities). You can freely choose to divide your premiums into any of the offered ULIP funds. Moreover, most ULIPs also offer automated Systematic Transfer Plans (STPs) for those who prefer an off-hand approach to investing.  

Unit-linked funds grow over time based on the current performance of the market. This means that your funds have the potential to grow exponentially if the market performs well. However, ULIPs also come with the risk of low returns in case of poor market health, especially if you focus your investments on equity funds.  

The advantage of ULIPs is that they are flexible. If you have a high-risk appetite, you can choose equity funds. Equity funds offer the chance of greater returns but are subject to market volatility. If you want to be more conservative with your money, you can focus on debt funds instead. Debt funds tend to be far more stable but offer moderate returns.  

Ultimately, the greatest selling point of a ULIP is that it is a life insurance plan that can also help you grow your life savings.  

What are the Types of Life Cover Provided in ULIPs? 

ULIPs are primary life insurance plans, which means that your loved ones will be secured via the plan’s life cover element. However, it is important to note that the life cover element in ULIPs can vary from plan to plan. You need to be aware of two main facts when evaluating the life cover element of a Unit-Linked Insurance Plan: 

1. The Sum Assured Multiple- All life insurance plans have a ‘sum assured’, which is the assured amount your loved ones will get when they make a claim. In ULIPs, the sum assured can range from anywhere between 5X to 10X your annual premium. Ideally, your life cover amount should be at least ten times your annual salary. So, keep that aspect in mind when choosing your life insurance plan. 

2. The Type of Death Benefit- ULIPs offer two types of death benefits: 

• Type 1- Where claimants get the sum assured or the fund value; whichever is higher at the time of making a claim.  

• Type 2- Where claimants get the sum assured and the fund value together.  

Features of ULIPs 

The main benefits of Unit-Linked Insurance Plans (ULIPs) can be broadly categorized into The three Ds: 

– Double benefit: The double benefit of investment and life cover make ULIPs a unique option. This dual role not only helps the policyholder to achieve their goals but also secures their financial dependents. In the case of untimely death of the policyholder a claim is paid to the nominee as a sum assured. 

– De-taxable: Let’s not forget the tax benefit under section 80C as well as the exemption on all payouts under section 10(10D) of the Income Tax Act, 1961. 

– Durable and flexible: ULIPs are a great long-term investment option with a high potential for growth. The power of compounding will help you overcome the rising cost of living. You can also switch between funds as per your risk appetite. 

You can use ULIPs to fulfil various objective such as your child’s education, marriage, or buying a house. 

Advantages of Edelweiss Life- Wealth Plus 

If you are looking for a new age ULIP that can help you secure your family’s future, look no further than Edelweiss Life- Wealth Plus: 

• Zero allocation and administration charges: 100% of your premium is invested in the funds as per your chosen investment strategy. No premium allocation and policy administration charges are levied throughout the policy term. 

• Additional allocation:  Edelweiss Life – Wealth Plus ensures that 100% of premium paid by you is allocated to the funds as per your choice and investment Strategy. In addition to this, the plan provides additional allocation every year starting from the 1st Policy Year until the end of the premium paying term. 

• Rising STAR Benefit: Rising STAR Benefit offers additional coverage for your little one to ensure that nothing comes in the way of their future aspirations.  

• Unlimited Fund Switching: Edelweiss Life- Wealth Plus offers unlimited fund switching, meaning that you can freely adjust your fund allocations as per your needs and convenience.  

Who Is a ULIP For? 

ULIPs are the ideal financial product for people like Swapnil, who need to balance their financial plan between wealth growth and their family’s well-being. A ULIP’s life cover element will ensure that Swapnil’s wife and children are financially secure in his absence. Plus, the market-linked funds will help him grow his wealth over time, which can help Swapnil secure his future financial goals. Swapnil can also focus on debt funds if he is risk averse. And if he does get the opportunity to invest in high-risk equity funds, he can simply switch his premiums from debt to equity in his ULIP portfolio.  

ULIPs are not just useful for those with a family. Young people can especially benefit from ULIPs, as the investment element can help them grow their savings for major financial goals down the line. Moreover, insurance providers generally offer lower premium rates for higher life cover amounts when the policyholder is young. So, a young person can also benefit from a higher life cover if they start investing in a ULIP as soon as possible.  

Those who want to create a retirement corpus can also benefit from ULIPs. The returns from a ULIP can ensure a financially stable retirement. Plus, many ULIPs also allow for partial withdrawals, meaning that you can withdraw a part of your funds at any time you need. This partial withdrawal option can provide retirees with liquid cash during emergencies.  

Right Time to Invest in ULIPs 

The right time to invest in a ULIP is NOW. The sooner you invest the better, especially when it comes to your life cover amount. Moreover, ULIPs can help you develop your savings corpus. Market interest rates generally beat inflation rates, ensuring that your purchasing power does not deteriorate over time. Remember that ULIPs perform the best as a long-term investment. Don’t think of ULIPs as a quick way to grow your wealth, but rather a slow yet steady form of  

Conclusion 

FAQs 

How to calculate ULIP returns? 

You cannot accurately calculate returns for ULIPs as they are non-guaranteed products. ULIP returns can vary drastically depending on market performance, and market interest rates cannot be predicted with complete surety. As ULIPs are non-guaranteed, insurance providers usually share two possible interest rates, 4% and 8%. Your get two potential returns based on these placeholder interest rates. But note that these rates do not accurately reflect actual market fluctuations and are merely shared as examples to help you understand the plan’s benefits.  

Is ULIP risk free? 

No, ULIPs are not risk free. Since ULIPs are market-linked, there is always a chance that your funds will perform poorly due to a market downturn. However, you can focus on debt funds instead of equity if you want to mitigate risk in exchange for lower returns.  

Are there any charges associated with ULIP? 

Yes, ULIPs can come with a variety of additional charges such as mortality charges, premium allocation charges, fund switching charges, withdrawal charges etc. Note that not all of these charges are applicable to every single ULIP. For example, some ULIPs have an unlimited fund switching benefit that exempts you from any fund switching charges.