As you grow older, you might have various life goals such as purchasing a new house or a car, starting a business venture, and so on. For achieving such life goals, you might require the right financial backup. While there can be different investment tools such as Public Provident Fund (PPF), Mutual Fund (MF), and National Pension Scheme (NPS), a Unit Linked Insurance Plan (ULIP) can allow you to accumulate funds to meet your life goals as well as protect your family financially in your absence. A ULIP Plan can be a dual-benefit product, which can combine investment and insurance under a single integrated plan. Besides, it can offer various ULIP benefits that can allow you to realize your dreams without the worry of financial constraints:
A ULIP policy has remerged in the Indian market to an affordable investment product from a costly affair. The Insurance Regulatory and Development Authority (IRDA) has made specific changes in the charge structure of a ULIP policy. After the changes announced by the IRDA, this type of life insurance policy can include the most common types of ULIP charges given below:
- Mortality charge: It can be deducted in return for life coverage.
- Policy administration charge: It can be deducted from the administrative expenses of your ULIP policy.
- Premium allocation charge: It can be deducted directly from your premium amount.
- Fund management charge: It can be deducted for the management of equity funds and debt funds.
Although a ULIP policy is affordable, you can purchase a ULIP policy at a relatively lower price from the online website of your insurer. Since an online purchase might not involve the commission charges of an insurance agent, you might get it at a lower rate. Additionally, an online purchase can be a convenient option since you can buy it from any corner of the world with a single click.
- Tax efficiency
A ULIP policy can be an effective way of saving more taxes. Since tax saving can be the major benefit of a ULIP policy, many of you might choose a ULIP investment to reduce your tax liability. A ULIP policy comes under the Exempt-Exempt-Exempt (EEE) category, which is why it can provide tax benefits according to Section 80C and Section 10(10D) of the Income Tax Act, 1961. Let’s understand the tax benefits offered by a ULIP policy based on Section 80C and Section 10(10D):
- Section 80C
Premiums can be an essential part of the ULIP policy since it is paid for the coverage. If you pay the premium regularly, you can be eligible to claim the deductions under Section 80C up to Rs. 1,50,000 on your taxable income.
- Section 10(10D)
Under a ULIP policy, you can receive a payout called maturity benefit. The maturity benefits that you receive after the ULIP policy reaches the maturity date can be tax-free as per Section 10(10D).
A ULIP policy can be a flexible option for investment. Under a ULIP policy, you can have the liberty to choose between the following based on your convenience:
- Premium payment mode
A ULIP policy can allow you to pay the premium amount based on your convenience and financial status. Typically, you can make the premium payment quarterly, monthly, half-yearly, or annually.
- ULIP funds
As a policyholder, you can select between equity funds and debt funds based on your risk appetite and investment goals. Selection of the right fund can allow you to generate the desired returns. For instance, if you choose equity funds, you can obtain relatively high returns and vice versa.
A ULIP policy is a market-linked investment product. Due to higher risks, market volatility can be your primary concern before investing in a ULIP policy. Although a ULIP product can be linked to the market, you can secure your invested capital from the fluctuations with the help of a switching feature. Under a ULIP policy, the switching feature can allow you to diversify your investment portfolio as well as protect yourselves from market volatility.
In a nutshell, the re-emergence of a ULIP policy in the market can fulfil your investment as well as insurance goals. Before asking yourself “why should I invest in ULIP?”, consider your financial goals and choose a plan accordingly so that it aligns with it. Moreover, compare various ULIP policies in the market and then make the final selection.