Life insurance protects your loved ones financially in your absence. However, a sufficient cover requires you to pay high premiums, which reduces the funds available for you to invest in other financial products. A popular product where you can get life insurance and an investment quotient in one plan is a Unit-linked Insurance Plan (ULIP). What is a ULIP policy? A ULIP is a smart investment where the premiums you pay are partly invested in funds that you choose and partly used for providing you with a life cover. A ULIP allows you to generate sufficient funds over the long haul.
Estimated wealth generation from a ULIP in 10 years
ULIPs are designed for the long haul, and in order to reap their maximum benefits, you need to stay invested for at least 10 years or more. The expected returns of ULIPs for the long haul range from 10% to 12%. Over the years, the returns from ULIP easily beat returns from fixed deposits (FDs) and other tax-saving products. When compared to government-backed investment instruments, like the National Savings Certificate (NSC) and Public Provident Fund (PPF), ULIP returns in 10 years are much better. If invested with care and proper planning, your ULIP returns can easily beat the rising inflation over the years.
Why choose ULIP for wealth generation in 10 years?
ULIPs have several key features that enable you to create wealth in the long haul for 10 years and above. Here are the most prominent ones:
Offers several options
When compared to traditional investments or government investments, ULIP easily provides high returns. You can invest in funds of your choice when you buy a ULIP online. When you are planning your financial goals, you can choose a fund that aligns with them. Equity funds offer high returns but have a high risk involved. Whereas debt funds are safe investments but offer low returns. If you are seeking an investment that offers moderate returns, you can simply invest in a balanced fund. In these funds, your money is divided between debt and equity. The balance ensures that you earn moderate risks without having to take an extensive risk.
Switching between investments
Financial products do not allow you to change the course of your investment anytime in between. This is where ULIPs have an edge over several investments as they allow you to switch between different investments anytime you want. You can switch between debt funds and equity funds anytime you want. With the changes that occur in the market, you can change your allocation accordingly to get maximum benefits. This feature is helpful for multiplying your ULIP returns in 10 years. Also, as you age, your risk appetite may increase or decrease, and so, you can alter the fund allocation accordingly.
Tax benefits on multiple levels
Since ULIP is a two-in-one product, it offers tax benefits on multiple levels. When you buy a ULIP, the company partially invested the premiums you pay in funds of your choice and partially use it towards providing you with a life cover. As per Section 80C of the Income Tax Act, your ULIP premiums are exempt from taxes. Also, the maturity amount that you receive when your ULIP matures is subjected to tax exemptions. The exemptions depend upon the funds you have invested in. In case of your unfortunate demise, your nominee will receive a death benefit. The death benefit is also exempt from tax under Section 10 (10D) of the Income Tax Act. When you buy a ULIP online or any other financial instrument, it is important to take the tax benefits into consideration.
Allows free partial withdrawals
When in need of funds urgently, most financial instruments restrict withdrawals or need you to either pay charges or dissolve the instrument altogether. A ULIP has a lock-in period of 5 years. After that period, you can withdraw money from your ULIP anytime you want. It offers free partial withdrawals after that. This is a unique feature where you can opt for partial withdrawals whenever you need funds.