Who Should Buy a ULIP Plan?

Understanding a ULIP Plan

A Unit Linked Insurance Plan  (ULIP) is a life insurance plan that offers life insurance coverage along with the potential of wealth creation through market linked returns . A part of the premium is used for life insurance coverage, while the remainder is invested in market-related funds. Therefore, ULIPs can help you create a corpus for your financial goals while enjoying life insurance coverage during the policy term.

If you are wondering, ‘who should buy a ULIP plan?’, the answer is that it is suitable for all. Let’s understand why.

 

7 Reasons to Invest in ULIPs

A ULIP is a life insurance plan that offers the dual benefits of life insurance cover and market-linked returns. You get complete flexibility in managing your money according to your risk preference and investment strategy. With life insurance coverage and the potential of market-linked returns, ULIPs can be suitable for those who want to build wealth but still need financial protection. The following are the 7 reasons why you should buy a ULIP plan:

 

1. ULIP and Financial Goals Alignment:

There are different types of ULIPs available, which can cater to the different financial goals that you might have. For instance, if you want to save for your child’s higher education or future needs, you can choose child based ULIPs. Similarly, if retirement planning is on your mind, you can pick Unit Linked Pension Plans . For other long-term goals, you can choose long-term ULIP plans and create a corpus.

Thus, with ULIPs, you can pick a plan that aligns with your financial goals.

 

2. Investment Flexibility Features that suit every investor:

ULIPs offer complete flexibility in managing your investments. With a ULIP, you have the option to shift your market-linked wealth across a range of market linked funds. Depending on your appetite for risk, age, and the returns you seek, a ULIP can be a suitable investment option for you as an individual. For those who want to monitor their finances in real-time, Unit Linked Insurance Plans may be a preferred option. There is also transparency in transactions. Finally, ULIPs help you attain a degree of financial freedom and the flexibility to choose market linked funds that specifically match your financial needs.

 

3. Risk Appetite Consideration:

ULIPs offer different types of market linked funds catering to the different risk profiles of policyholders. You can choose equity-oriented funds if you are an aggressive risk taker. On the other hand, if you are risk-averse, you can choose debt-oriented funds. There are also balanced or hybrid fund options that suit individuals with a moderate risk profile, as these funds combine equity and debt.

 

4. Lock-in Period and Partial Withdrawals:

Previously, ULIPs had a lock-in tenure of three years. The lock-in tenure now stands at 5 years. With a ULIP, to see any gains that will be beneficial to you, you need to play a patience game. If you are willing to wait to see rewards in 10-15 years, you may consider going in for a ULIP. After the lock-in period has expired, partial withdrawal is allowed. You can withdraw partially from the fund value in case of financial exigencies , subject to the policy’s terms and conditions, and enjoy liquidity to meet your financial needs.

 

5. Tax Benefits and Suitability:

Investing your wealth in a ULIP gives you tax benefits under the Income Tax Act, 1961, depending on your amount of investment and as per the provisions stated in the act. One can claim the deduction up to Rs. 1.50 lakhs under Section 80C of the Income Tax Act for the premium paid under ULIP policies. Moreover, any benefit received under the ULIP policy is tax-free in the hands of the recipient, subject to the satisfaction of conditions mentioned in Section 10(10D) of the Income Tax Act. Note that if the ULIP policy is issued on or after 1 February 2021 with a premium of more than Rs. 2.50 lakhs, gain from such policy will be taxable as Capital gain in the hands of the recipient, subject to equity/debt holdings under the policy. One can also take the aid of the ULIP Calculator for further assistance.

 

6. Ideal Investor Profile for ULIP:

Given their flexibility and a variety of plan options, ULIPs can suit different types of investors. Aggressive investors can choose equity funds in ULIPs and unlock the return potential that these funds offer. For conservative investors, there are debt funds, while for moderate investors, there are hybrid funds. So, ULIPs suit all investor profiles.

 

7. Age Does Not Matter

One of the features of ULIPs is the fact that they offer a broad range of plans to choose from. You can get a policy to suit your age and preferences. Depending on the stage of life you are in, there will always be a ULIP to match

 

ULIP for Different Life Stages

One of the features of ULIPs is the fact that they offer a broad range of policies to choose from. You can get a policy to suit your age and preferences. Depending on the stage of life you are in, there will always be a ULIP to match.

Here are some examples –

• If you are young and unmarried, you can purchase ULIPs to build a corpus for your financial objectives.
• If you get married, you can opt for ULIPs to create a corpus for your financial goals.
• If you have a child, you can choose child based ULIPs to create a secure corpus for your child’s future needs.
• Unit Linked Pension Plans are suitable for retirement planning at every stage of life.

Therefore, select a ULIP that aligns with your life stage and plan accordingly to achieve your financial goals.

 

Key Takeaways

• ULIPs are a combination of life insurance and market-linked returns in one plan.
• Some of the benefits of ULIPs include goal-based investing, flexibility, partial withdrawal liquidity, and various plan options.
• You can also enjoy ULIP tax benefits under Sections 80C and 10(10D), subject to specific terms and conditions.
• You can choose a suitable ULIP depending on your financial needs, given the variety of plans available in the market.

 

Conclusion

A ULIP plan is suitable for everyone who wishes to save and grow their market-linked wealth with calculated risks. When you work on a financial plan for your life, a ULIP may help you diversify your portfolio and keep you financially secured at the same time.

ULIPs can help you save for your retirement too. If you start your plan while you are an earning member of your family, you can afford to take more risk in terms of the investment in equity funds under your plan.

 

FAQs

 

1. How does a ULIP plan help in achieving financial goals?

There are different types of ULIPs and some of them can be taken to create a corpus for a specific goal. For instance, child based ULIPs can help you plan for your child’s future and Unit Linked Pension Plans can help you save for retirement.

 

2. How does risk appetite affect a ULIP plan investment?

The level of risk that you are ready to take decides which type of market linked funds you will consider (equity, debt, or balanced). For example - If you have a high risk appetite, you might invest in equity (more potential for returns, but higher volatility). On the other hand, if you are a conservative investor, then debt funds can be a suitable choice.

 

3. How can a ULIP plan be suitable for different life stages?

The different types of ULIPs make them suitable for different life stages. You can choose long-term ULIPs when you are young and build a corpus for your financial goals. If you become a parent, you can choose child based ULIPs and if you are planning for retirement, Unit Linked Pension Plans can be the right choice.

 

4. How to choose a ULIP plan based on personal financial goals?

You can identify your financial goal and then choose a ULIP that matches it. When buying the plan, assess the savings required to create the desired corpus, the investment horizon, your risk appetite, and other factors.