Three-way benefits for investing in ULIP policies
Apart from getting a curb on spending habits, demonetization has affected the available investment tools as well. Banks that are now flush with funds have already started to reduce interest rates on fixed deposits and are expected to lower them further in near future. Thus, life insurance products seem to become the preferred options for investors. The sector has seen a rise of around 70 to 80% in the life insurance investment segment thereby touching giant figures of around 16,000 crores in 2016. Whether its single premium or regular premium policies they have shown growth over the period.
Of all the insurance products, Unit Linked Insurance Plans can be considered as a reliable wealth creation solution over the medium to long-term phase, keeping in mind the 3-tier beneficial aspect of market returns, protection and tax savings component being combined in one single product.
ULIPs permit investing one’s premium in a mix of debt and equity funds with varying proportions allowing fund switching with no tax liability. They stand out from other investment tools as the gains after the maturity is also tax-free in the hands of the investors.
Ulip Policy allows the policyholder to choose his or her preferred asset class. A young individual with high-risk tolerance could invest primarily in equities or go for a combination of equity, debt and money market investments to enjoy higher returns with lower risks. Of course, there will be additional peace of mind in the form of freedom to switch asset classes. So, if at any point you’re not able to derive earning you can talk to a financial expert and make a suitable switch.
Thus, one can modify their investment strategy as per their financial goals and alter the allocation to equity or debt funds without any hassles. ULIPs also offer fantastic tax savings on withdrawals that are unavailable in other investment tools. These withdrawals could in the following instances such as a death of the policyholder, maturity of the policy, partial withdrawal at the discretion of the policyholder. The payout is exempt u/s 10(10D) of the Income Tax Act, 1961.
ULIPs have a minimum lock-in period of five years. So the policyholder can make partial withdrawals after this tenure. Partial withdrawal which don’t exceed 20% of the fund value are completely tax-free provided they are done after the completion of the minimum lock-in term.
However, experts say it’s a must to understand that ULIP is a long-term investment plan. You can gain the maximum if you stay invested till maturity. They are not to be mistaken as short term investment vehicles with quick gains.
A rider undera ULIP would be an additional cover along with the base policy. Although it may charge you a little extra but it ensures you’re protected from risks borne out of unfortunate incidences. There are various types of riders such as accidental death, disability benefit, waiver of premium, critical illness, etc. In case you receive a lump-sum amount you can always pool your extra resource in market-linked funds through top-ups.
Thus, Ulip Policy is the simplest yet most efficient way to enjoy the triple benefits of suitable life insurance cover, higher returns as well as tax savings with low risk of losses and other complexities on your investments.
