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Life is full of opportunities, and securing your future while enhancing your wealth is a smart financial strategy.
Unit-linked insurance plans (ULIPs) offer a unique combination of investment and insurance, allowing you to achieve wealth creation while ensuring financial security for your loved ones.
These plans have gained popularity for their flexibility, enabling policyholders to achieve long-term financial goals by tapping into the power of market-linked investments.
Market-linked returns
Market-linked returns is a key feature of ULIP, offering the potential for higher returns compared to traditional life insurance. Investors can select from equity, debt, or hybrid funds based on their risk profile.
The flexibility to switch between these funds allows investors to align their investment decisions to market conditions. This makes ULIPs suitable for those looking to optimise returns by adapting to changing marketing conditions.
The cherry on the cake is that these switches can be done with minimal or no switching costs.
Financial management
ULIP plans are useful instruments for financial planning and wealth building. Investors can accumulate wealth by staying invested for a longer term to achieve long-term important financial goals, such as retirement or children’s education, which needs considerable discipline and planning. Investors, with a longer investment window and higher risk tolerance, may find ULIP particularly advantageous.
However, risk-averse individuals seeking stable returns might prefer traditional insurance plans.
Investment diversification
Customers can appreciate their assets over time by choosing from a variety of investment fund options provided by the ULIP plans. Diverse options lessen the impact of market fluctuations on the portfolio and help reduce risk. The best unit linked insurance plans are designed to maximise the long-term growth potential of investments and help you invest in multiple sets of assets to strike a balance between risk and return.
Tax benefits
ULIP plans can be a tax-efficient investment choice in the long run. One of the key objectives of these plans is to give exciting tax benefits. It is subject to specific limitations, premiums paid towards ULIPs are deductible from income under most tax regimes up to a certain limit.
Moreover, ULIP plan in India can provide tax-free perks for maturity and death benefits subject to conditions, which makes them a perfect choice for anyone who’s looking to reduce their long-term tax obligations while creating wealth.
Lock-in period
One of the hindrances for customers deciding to invest in ULIPs is the mandatory five-year lock-in period. During this time, you cannot withdraw your funds, which limits liquidity. Though this can be a drawback for investors seeking quick access to their money, it ensures disciplined long-term investment to achieve your goals.
Retirement planning
Retirement is one goal you need to plan for, regardless of whether you have a dependent on you or not. ULIP Pension Plans can be a strong means to help you reach your retirement savings, which is an underserved segment in India. Begin saving for your retirement days and have peace of mind during your old age. Since you are just getting started, your investments should amass over time.
Life insurance cover
ULIPs offer financial security to the policyholder’s family in the event of an untimely death in addition to the investment aspect. Life insurance coverage is a part of the ULIP plans. The needs of your loved ones can be met by this life insurance amount paid under the unit linked insurance plan. It can assist in paying off credit, supporting education, living expenses and other financial commitments.
In 2024, ULIPs can be a good investment for those with a long-term outlook, risk appetite, and a need for life insurance. They offer the potential for higher returns, tax benefits, flexibility in managing investments and financial security for loved ones.
Ultimately, the decision to invest in ULIPs should align with your financial goals, risk tolerance, and understanding of the associated costs and benefits. For investors aiming to grow wealth over the long term, ULIPs offer a compelling solution. However, as always, it’s essential to evaluate your broader financial strategy before committing to any investment.
(The writer is Deputy Vice President & Head - Products, Ageas Federal Life Insurance)