Reasons Why You Should Invest in a ULIP Scheme

Determining the right investment avenues are an essential aspect of financial planning. The investment instruments available today are quite dynamic, each having distinct features. While fixed deposits are a popular investment option, they are not able to deliver returns that beat inflation. On the flip side, directly investing in share markets can be risky. However, investors can enjoy the advantages of the share market without the high risks by opting for Unit Linked Insurance Plans (ULIPs). These plans also double up as a life insurance policy.

The premiums paid towards ULIP get divided into two parts, one towards investment in money market instruments and another towards life insurance coverage. Hence, a ULIP investment plan helps you to build your wealth while getting the protection of life insurance.

Here are some of the main reasons why you should consider investing in a ULIP scheme: –

• Dual benefits in a single package: ULIP is a unique financial instrument that works as an investment and life insurance coverage at the same time. This would allow you to save a lot on the respective premium amounts and better manage your finances.
• Tax Exemptions: ULIP tax benefits are pretty attractive as well. Under Section 80C of the Income Tax Act of 1961, investments made in ULIPs are eligible for tax deductions. You can claim up to INR 1, 50,000 every year on your ULIP investment. 

Moreover, for ULIP issued before Budget 2021. the returns you get as your policy matures shall also be exempted from tax under Section 10(10D) of the Income Tax Act, 1961. The maturity benefit is subject to fulfilling the following criteria: For ULIPs purchased on or after April 1, 2012, the total annual premium shouldn’t exceed 10% of the total sum assured and for ULIPs purchased before April 1, 2012, the total annual premium shouldn’t exceed 20% of the total sum assured mentioned in the plan.

Apart from the deductions under Section 80C of the Income Tax Act, 1961, post declaration in Budget 2021, ULIPs are now also subject to the long-term capital gains (LTCG) tax at 10% as all equity-oriented investments. 

Furthermore, the amount received by your nominee upon your demise remains exempted under Section 10(10D) of the Income Tax Act, 1961.

• Systematic investment: ULIP investment plans encourage you to invest in a disciplined manner. By simply investing a small amount into funds at regular intervals, you can stay protected from the lows and highs of the fluctuating market and instead make the most of these price fluctuations.
• Long-term wealth creation: One of the most advantageous aspects of ULIP investments is that it supports wealth creation for the long term. You can opt to pay premiums for a greater time horizon under such schemes and ultimately receive higher returns. This accumulated amount can be used for meeting particular goals, such as making a down payment for a home loan, paying for the higher education of children, or even retirement planning.
• Flexible investment options: ULIPs are popular for the high range of flexibility they offer, especially in terms of:  

• Fund Switch: You get the freedom to move your investments between balanced, debt, or equity funds based on your risk appetite and market outlook. If the equity market is performing well and you desire to increase your risk appetite and take advantage of the market trends, then you can always increase your equity fund exposure. However, if you want to reduce your risks at any time, you may easily switch your investment into balanced or debt funds.
• Top-up options: If you get promoted at work or get a bonus, then you may put that money to use with the top-up facility available with the ULIP investment plan. It basically allows you to invest more funds in your existing savings.
• Premium redirection: With ULIP, you get to redirect your future premiums into different funds based on your evolving financial goals.
• Life cover: In case of your unfortunate demise, your family members may face many financial difficulties, especially if you are the sole breadwinner. ULIP schemes help provide a financial safety net to your family. As it comes with life cover, the sum assured amount of the ULIP plan can be used by your family members to meet their financial obligations, pay pending debts and ensure that your family can maintain their lifestyle.

Owing to ULIP tax benefits, its high flexibility, and more, investing in such a plan is definitely a prudent move, especially if you want to create long-term wealth. You can explore multiple ULIP schemes online and subsequently invest in the one that fits your requirements and budget.