The key to a stable financial future rest in the hands of the investments we make throughout life. We’re always on the lookout for investment opportunities that can yield good results; one such modern financial tool is Unit Linked Insurance Plans or ULIPs. A ULIP is a market-linked product that offers the investor a wide range of benefits. The two most prominent benefits are that it serves as an investment and a life insurance plan. Thus, with the help of ULIP, you have the ability to secure your health and your wealth.
How Does A ULIP Work?
ULIPs are a great investment tool for those who want personal protection of insurance along with capital gains. After buying a ULIP, you have to pay the required premium amount. This amount gets split into two factions. One part goes towards paying your life insurance premium, while the second part gets invested in securities or debt markets. As a policyholder, you have complete control over where your premium is being invested. Many insurance companies, like Edelweiss Tokio Life Insurance, also offer financial advice to their ULIP policyholders, so you can leave the investment decisions in their capable hands. Also, you can keep track of where you want to invest your money on a regular basis. One important thing to keep in mind is that this is not a short-term investment plan, as many ULIPs offer life insurance cover for up to 100 years and a payout option after a certain period of time.
Overview of Unit Linked Investment Plans (ULIP) in India
The Unit Linked Insurance Plans were started in 1971 by the Unit Trust of India (UTI). But being a new product in the investment sphere, it was met with some resistance. This happened mostly because of the actions of a few insurance companies that encouraged mis-selling of the ULIPs through its commission model. However, ULIPs have seen immense growth over the years. In fact, as per a report published in the Financial express this year, ULIP has seen a 49% year on year growth to 130 billion, as compared with 2020.
What are the Current Trends in the Unit Linked Insurance Plans?
The last few years have reinforced the clear importance of maintaining a safety net, for your finances and your life. This belief has been reflected in the way people across the country have displayed a greater interest in securing their health and wealth creation. This has been backed by the sustained low interest climate and resilience of equity markets. In this environment, ULIPs have thrived, owing to their dual-benefit nature. Some of the current trends that are influencing this meteoric rise are as follows:
Return of Mortality Charge (ROMC) ULIPs
When an investor purchases a ULIP plan, one part of their premium goes towards their life insurance cover, while the rest of the funds are used to grow their wealth. The ‘mortality charges’ refer to the amount that the insurer will deduct to offer your life coverage. In accordance with recent changes, these mortality charges will be added back to the policyholder’s fund value at the time of plan maturity.
Other Charges Being Eliminated
In addition to the Return on Mortality Charge, there are a few more charges that have been reduced. Some of them include:
- Revival charge
- Fund management charge
- Premium allocation charge
- Switching charge
- Medical examination charge
- Miscellaneous charge
- Discontinuance or Surrender charge
However, the rising demand for ULIP will lead to reduction in the various charges that may be associated with the plan. Earlier investors can surely get a wide range of benefits. The advent of online ULIP investment will provide the benefit of minimal charges. Therefore, investors can consider comparing the plans to get the maximum benefits.
Exemption from the Long-Term Capital Gains (LTCG) Tax
The Long-term Capital Gains Tax was launched into the market on stocks and equity funds, during the budget of 2018. The ULIP is an essential insurance tool that was exempted from this tax. Because of this, ULIP has gained an edge over other financial tools like ELSS, mutual funds and more. This helps ULIP become a tax-saving investment tool offering good returns to the policyholder.
Things To Consider While Getting ULIP
Considering the rising and changing trends across the ULIP, there are more than enough reasons to invest in it. Here are some of the prominent things you will need to consider getting the best ULIP plan in India:
- Choose a ULIP Fund that suits your goals:
With ULIP, you will get the option for investing in debt funds, equity funds, or a mixture of both, on the basis of your risk appetite. Each of these funds have a prominent benefit. Depending on your requirements, you can either invest in equity or debt. Furthermore, you also have the flexibility of unlimited switching of your investments across these diverse funds.
- Invest for Long Term
If you are considering investing in ULIPs, you should consider investing it in for a long term. ULIPs will play an important role in helping you achieve your financial goals by being more disciplined and creating wealth overtime.
You can also boost your insurance benefits if you will be investing in ULIP for a long time. You can get a wide range of bonuses, such as Loyalty Additions and Wealth Boosters. Using these bonuses will play an important role in helping you increase your wealth.
- Tax Benefits
When you invest in ULIP, you can get tax benefits. The tax saving benefits are allocated as per the Income Tax Act 1961. When you get the ULIP plan, you will get a wide range of benefits under Section 80C and Section 10(10D). These include the following:
- First Stage: This is the entry stage, and you will get a premium payment option.
- Second Stage: In the second stage, it is referred to as the earning benefit. Therefore, the money that will be growing will not be taxable.
- Third Stage: This is the switching benefit stage where you will have the flexibility to switch between debt funds and equity. Therefore, you will not need to pay any tax upon it.
- Fourth Stage: This is the tax exemption stage that you will receive as per the maturity amount.
- Get the Required Amount of Life Insurance Cover
ULIP plans are for investors to help them meet their long-term goals. This helps to provide financial cover when the policyholder dies. The insurance cover will help you meet the future requirements and protect your family against any future uncertainties.
Do you plan on investing in ULIP? You should consider reaching out to professionals at Edelweiss Tokio Life. They will guide you on how to plan for your unique needs so you and your loved ones can grow your wealth while having have a secure future.