Since 2010, ULIPs have seen a resurgence in the Indian financial market, thanks to the intervention of the Insurance Regulatory and Development Authority of India (IRDAI). Some credit is also due to insurance companies like Edelweiss Tokio Life Insurance for bringing innovative Unit Linked Insurance Plans into the market and then actively working to raise awareness about them.
ULIPs, in their current iteration, are finally living up to their full potential and providing more value to policyholders than ever before. They were envisioned as long-term life insurance and investment instruments, and the modern ULIP plans deliver on this purpose.
Let us see how they work and how they can be ideal for a multitude of long-term goals.
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How Do ULIPs Work?
Unit Linked Insurance Plans are life insurance products that have an element of investment and wealth creation. They work in a similar fashion to any other life insurance plan, wherein you choose your policy term, a sum assured, and based on these factors (plus some additional ones like your age and health), your premiums are decided.
The premiums for ULIP plans serve a dual purpose. A portion from them is utilized to provide life cover to the policyholder. The remaining is invested in a diverse pool of funds, made up of either debt, equity, or a balance of the two. All these funds have varying degrees of risk associated with them and can offer returns directly proportional to that risk.
Some Benefits of Unit Linked Insurance Plan are:
- Flexible: ULIPs offer great flexibility to the investors as they allow them to switch funds for no extra charge. This can come in handy whenever your fund is not performing as per your expectations or if you want to change funds due to a change in your risk appetite.
- Tax Exemptions: The premiums for ULIPs are exempted from taxation under section 80C of the Income Tax Act, 1961. These exemptions can be up to an amount of INR 1.5 lacs. The returns and the sum assured are also tax-free under section 10(10D).
- Life Cover: The luxury of a life cover cannot be overstated. The sum assured is fixed and not market-linked, contrary to popular belief. So you can be sure that your family/loved ones will be taken care of in your absence.
- Affordable: One of the reasons for the resurgence of ULIPs in their modern avatar is the reduction in price and the addition of transparency when it comes to the various charges involved in ULIPs. You can get a comprehensive ULIP plan like Wealth Secure+ by Edelweiss Tokio Life Insurance for as low as INR 1000 today.
What Purpose Can They Serve in Your Portfolio?
Now that we understand the benefits and workings of a Unit Linked Insurance Plan, the question of what purpose they can serve in your portfolio is worth pondering over.
Before we dive into the use cases, note that there is a lock-in period of 5 years when you buy a Unit Linked Insurance Plan. This period is standard across all kinds of ULIPs provided by all insurance companies. So the premiums that you pay towards the investments keep accumulating and growing untouched for five years at least. After this period, you are free to withdraw money partially from this corpus, but as we will discuss, it is not prudent to do so. The best returns need time and money.
The use cases of ULIPs can be specific or general. Just like any other market-linked investment, your money is going to grow, and the resultant corpus can be utilized in virtually any way you see fit. When looked at this way, ULIPs are not so different from pure investment products.
Where they start to differ are the features that add specificity to them. You can convert them into child plans, retirement plans, or let them be generic wealth accumulating apparatus to be utilized in the case of an emergency.
There are ULIP plans that can transform as your needs change, like Wealth Secure+ by Edelweiss Tokio Life Insurance.
How Can You Maximise Gains?
Although modern ULIPs offer fund management services so that even the less financially savvy policyholders can benefit from the insurance companies’ expertise, you can take some steps to ensure maximum gains from your corpus.
- Invest in ULIPs early in life.
- Avoid making any partial withdrawals.
- Choose equity funds as they offer the highest returns, but carefully as they have higher risk factors as well.
- Be prudent in making switches when the market situation changes. You can go for equity when the markets are performing well and debt or balanced funds when they are not.
Conclusion – ULIPs are Ideal for Long Term Goals
As we can see, ULIPs are designed to be long-term investments and can show their best utility in the fulfillment of your long-term goals. If you have not invested in a Unit Linked Insurance Plan yet, it is the right time to do so.
There is an urgent need for life cover in these uncertain times, and wealth accumulation can shield you from the onslaught of inflation. Do not wait it out. Go check out the variety of ULIPs offered by Edelweiss Tokio Life Insurance. You can get all the information you need online, including an estimation of premiums. Start your ULIP journey today and make it long!
