When you get married, you plan for everything. Be it your clothes, or the wedding venue, every item on the list is according to your vision. While we plan judiciously for this crucial milestone of our lives, most of us fail to financially plan for our future which consists of other important milestones as well. Ignorance, procrastination or lack of knowledge is what holds us behind.
If you are confused about the investments that can provide you with the maximum benefits, don’t fret. These days there are many instruments present in the market that provide you with the dual benefits of wealth creation and financial security. But among all the options, ULIPs stand out tall by offering you the best of both the worlds – insurance and investment. Read on to find out how ULIPs can help you in fast-tracking your investments.
What are ULIPs?
Unit Linked Insurance Policies or ULIPs are financial instruments that give you the best combination of insurance along with investment. Meaning, they help to generate wealth and also provide an insurance cover on your life. Insurers like Max Life Insurance set aside a specific amount of your investment as life insurance while the rest is put into different funds (equity or debt or balanced) according to your preference.
What Are the Benefits of ULIPs?
Given the right choice of funds, ULIPs can give you a lot of advantages over other types of investments.
- Life Protection Along with Investment
The most significant benefit that ULIPs give you is that you get a cover of life insurance on top of market returns on your investment. Knowing that you have life insurance protection, you can put your money into a variety of market funds suitable to your needs of returns.
- Market Linked Returns
ULIP plans always give you the opportunity to generate more money as you get the freedom to choose the funds to invest in. A part of your money is invested in funds based on equity, debt or a combination of both depending on the risks and terms you choose. You can use the ULIP NAV to stay updated with the market as well as your returns to make sure you are invested in the best ULIP plan available.
- Tax Benefits
The premium that you pay towards a ULIP can be deducted under Section 80C of the Income Tax Act, 1961. This includes all the applicable taxes, cess and other charges. The upper limit to avail the tax deduction is Rs. 1.5 lakhs.
All ULIPs purchased after April 1, 2012–The maximum tax deduction is only available if the premium amount is less than 10 percent of the sum assured. In case this is not true, then the tax-deductible availed can be a maximum of 10 percent of the assured sum.
All ULIPs assured before 1st April 2012 – In this case, the maximum tax-deductible is available if the premium is less than 20 percent of the assured sum. Otherwise, the maximum tax deduction availed can be up to 20 percent of the assured sum.
ULIPs also offer maturity values which are tax-free under Section 10 (10D) of the Income Tax Act, 1961.
- ULIPs Are Very Flexible
Every policyholder has different financial needs. The needs can differ from time to time depending on your capabilities and the shifting market. ULIP plans like fast track super plan offers you the option of changing funds from one to another based on your current needs. You also get the option to partially withdraw an amount from your fund depending on the terms of your contract. You also get multiple fund options and variable premium payment options which are highly customizable.
The flexibility of ULIPs can be termed as switching and redirection. This is not available in mutual funds or other financial instruments.
- Free from LTCG tax
ULIPs are free from Long-term Capital Gain Tax (LTCG). The budget of 2018 stated that investors must pay a 10 percent tax on the profits exceeding Rs. 1 lakh. So, if you choose a ULIP, you are exempted from paying this tax.
Mutual funds and other plans under LTCG tax are liable to be taxed if the profits are Rs. 1 lakh or above.
- Funds for Crucial Stages in Life
You may always need some funds at different stages of your life such as marriage, building a house, children’s education etc. ULIPs give you the option of partially withdrawing funds during times of need.
- Safeguarding Your Child’s Future
ULIPs offer you the choice to sieve through and invest in better market funds. The returns can help to create a corpus which can be used to secure your children’s future. The funds can be used for their education, medical care, travel, marriage etc.
- Financial Security After Your Retirement
Equity-based funds tend to do well in the long run. Therefore, ULIPs proves to be a powerful financial instrument that you must definitely add to your retirement portfolio. Thus, to maximise your benefits, you must start investing at a young age.
Why Are ULIPs a Better Choice Over the Rest?
As mentioned before, ULIPs offer you a lot of benefits. Let us see why you can safely choose them over the other long-term financial products.
- The Everyday Hassle of Managing Your Stocks Can Be Avoided
In ULIPs, you can choose to invest in equity-based funds which can offer you higher returns over the long run. You also do not have to check up on the stocks every day. The insurer from whom you bought the ULIP will do it for you.
ULIPs are extremely transparent financial products. You will always get a full picture of how your money is being handled, and all the other applicable taxes and charges levied.
You get the benefit of partial withdrawals at any point to meet any emergencies and other unforeseen needs.
- Low Surrender Charges
ULIPs have low surrender charges. In case you feel that the policy you are holding has become non-beneficial, then you can choose to surrender it. Most other mutual funds and plans charge you heavy taxes when you choose to do so, but ULIPs cost you a very minimal amount.
In conclusion, you can say that ULIP is a fast track super plan that can help you in achieving your investments goals in the given time. So, hurry up and start investing.