Unit Linked Insurance Plans (ULIP) gives an effective path to participate in the market as well as an insurance cover to deal with uncertainties of life or uncertain events.
Wealth, return, and security are the three core elements of any sound financial plan, and insurance, investment and, saving are advised to keep them separated from each other to provide the necessary commitment to each. However, ULIP is a combination of term plans and mutual funds.
Term plan provides a life cover and a lump sum is given when a person is no more. Though there is no investment component, still it covers the nominee for the duration of the policy without any changes in the premium. Other benefits are provided by clubbing the basic policy with add-ons such as Waiver of Premium, Critical Illness Rider, Accidental Death Benefit, Return of Premium, etc.
ULIP has dual benefits of life insurance and a low premium to accumulate wealth. A part of its premium buys a life cover while the rest is invested in equity, debt, or a combination of both based on one’s allocation based on risk appetite.
The three rules of accumulating wealth while having life cover:
1 Constructs your portfolio in such a way that different kinds of assets give higher long-term returns and lower the risk of the individual holdings’ security.
Term Plans and ULIPs are different from each adding both in your portfolio will not only help you to secure the financial future of your family but also build a good amount of wealth for your retirement and other future financial goals
2. ULIP Plans allow the policyholders to switch between multiple assets like equity, bonds, or hybrid funds, whenever they want, free of charge. Policyholders can choose to allot future premiums between different ULIP funds basis on the current scenario. One can also change the allocation of future premiums from equity to bonds or vice versa to take advantage of the market.
3. ULIPs are tax-efficient as they help the policyholder to save taxes in all phases. In ULIPs, switching between funds is permitted without any tax disclosures whereas in Mutual funds, switching between schemes has tax disclosures. ULIPs provide a tax advantage while switching funds and helps in saving income tax up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961. In Section 10(10D), the maturity amount is tax-free if the annual premium is lower than Rs 2.5 lakh.
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