ULIPs or Other Investment Options: Which One Is Better?

It is essential to invest today to have a sound and secure financial future. And in doing so, it is of utmost importance to select the right investing strategy.

Many investors often miss the most crucial aspect of life i.e. the futility of life. And that’s where an ideal investment option appears in the form of a unit-linked investment plan (ULIP). This life insurance policy type not only provides the advantage of investing in equity and debt funds but also comes with a life cover that is paid out as a death benefit to the nominee(s) in the unfortunate event of the policyholder’s demise. In short, ULIP secure your dependents as well.

What are ULIPs?

A unit-linked insurance plan (ULIP) is a kind of life insurance policy where one part of the premium goes towards investment in debt and equity funds, and the other part goes towards providing the insured person with a life cover.

Unlike other investments, ULIPs come with a lot of flexibility. You can choose to pay an annual upfront, half-yearly lump sum or monthly premium payments as per convenience. The premiums paid qualify for tax deduction under Section 80C of the Income Tax Act, 1961. In the unfortunate event of the policyholder’s death during the policy tenure, the nominee(s) are entitled to receive the sum assured that is also tax-free under section 10(10D) of the Income Tax Act.

Why choosing ULIPs can be the best decision?

ULIPs bring life insurance and investment benefits under one scheme, a few among which are: –

• Tax Benefits: The premium paid for ULIPs is eligible for deductions up to INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961. This is applicable when specified conditions under Section 10(10D) are met. Otherwise, the amount of deduction is capped at 10% capital sum assured for ULIPs issued on or after 1st April 2012 and 20% capital sum assured for ULIPs issued before 1st April 2012. The death benefit due to the untimely demise of the policyholder (during policy term) is also tax-free u/s 10(10D) of the Income Tax Act.
• Flexibility: ULIPs come with a lot of flexibility to switch between funds on the basis of one’s changing requirements and financial goals. One can move all or a portion of the investment from equities to debt to diversify the investment risk.

• Better returns than other investments: This is another factor supporting ULIP‘s viability as a long-term wealth-building investment. ULIPs have a greater potential for high returns than other products since it invests in various asset classes.
• Lock-in period: ULIPs have a lock-in period of 5 years. Certain ULIPs don’t allow partial withdrawals until the five-year lock-in term. Partial withdrawals are permitted post the ULIP lock-in period at any time. Nevertheless, depending on the chosen plan, most of these withdrawals are subject to fees.
• Risk coverage: ULIPs include a life cover that pays the policyholder’s nominee(s) the sum assured in case of his/her demise during the policy term.

When should you opt for ULIPs?

ULIPs are the best option for investing for a long term, to reduce tax liability and secure your dependents financially with a life cover.

That said, always analyze which investing strategy you should use based on your needs.

What is a ULIP calculator?

A ULIP calculator is a tool that helps you calculate the premium amount and check the estimated returns expected. The returns offered by a ULIP plan can be determined by the ULIP calculator based on premium payment and policy duration.

How to use the ULIP calculator?

A ULIP calculator is easy to use. However, if you are using the ULIP calculator for the first time, you will need to have some information on hand such as the intended investment amount, the estimated return rate, how long you wish to stay invested along with the expected return rate. Entering this information will allow you to calculate returns on your investments right away.

Investing wisely is essential for growing your wealth and ULIPs make a lot of sense in that regard. Having said that, always consider your risk appetite and financial goals before making any investment for higher returns.