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ULIPs (Unit Linked Insurance Plans): Basics, Features & Benefits

Life is uncertain and sometimes, it gets even beyond our control. While we may not be able to control how it functions, there are provisions to control the way it can affect us. Long-term savings and financial protection are among those ways that we leverage to protect ourselves as well as our families, giving them a secure future.

A popular type of long-term savings, Unit Linked Insurance Plans (ULIPs) provides financial protection in the wake of an emergency. A smart and careful ULIP investment brings along a host of benefits like tax savings and wealth boosters, however, subject to its choice based on your risk-taking appetite.

If you are planning to invest in ULIPs, it is important for you to understand its basics along with the features and benefits. Hence, continue reading.

An Overview of Unit Linked Insurance Plan

Unit link Insurance Plan abbreviated as ULIP is a unique investment option that seamlessly combines the best of an insurance plan with market-linked investment to help you fulfil your financial goals. Primarily a wealth creation tool, ULIP also offers life cover, differentiating it from the traditional wealth creation tools. All in all, it not only helps your money grow but also secures your family’s future in case life decides to take an unexpected turn.

How do ULIPs work?

You can create wealth for your family to build your dream home or plan your retirement, all by investing in ULIPs. As a unique investment cum life protection plan, it ensures that your financial goals are met even under unforeseen circumstances.

Under the ULIP insurance plan, an insurer pools money from different policyholders and invests it in the chosen funds. The total corpus here is divided into units with a certain face value. Each of these units is

further allocated to the investors in proportion to the invested amount. This unit value is called Net Asset Value (NAV) and is affected by the rise and fall of the value of underlying assets.

When investing in ULIPs, you will have to decide the level of life cover, the premium amount, tenure, and payment option that matches your preference. Additionally, you will also be allowed to select the premium payment frequency monthly, half-yearly, or annually as well as a lump-sum premium amount as per your convenience. While one part of your decided premium will be invested in the stock market, the other part will be utilized to provide you with a life cover. In case of an unfortunate event during the policy tenure, the sum assured will be given to your nominee.

Types of Unit Linked Insurance Plan

Explained below are different types of unit-linked insurance plans (ULIPs) in India.

1. Based on Type of Funds

  • Debt
  • Equity
  • Cash funds
  • Liquid funds
  • Balanced funds

2. Based on Wealth Creation

  • Life-staged
  • Guaranteed and non-guaranteed
  • Single premium and regular premium

These classifications help you choose a ULIP investment plan that fits your risk appetite and financial goals.

Features of Unit Linked Insurance Plan

1. Investment Allocation

ULIPs allows you to select investment channels at your convenience. You can either be conservative with your debt funds or go a little aggressive with the equities, all by your choice. Besides, it enables you to manage your corpus and future investments through systematic transfers from one account to another.

2. Partial Withdrawal

As said earlier, life is unpredictable. But, a ULIP plan helps you stay prepared for unforeseen situations with its partial withdrawal features. You can conveniently withdraw the required amount after five years of the lock-in period.

3. Fund Switch

Won’t it be great if you get the flexibility to switch funds if their performance is not up to the mark? ULIPs give you the freedom to do so. Simply divert your investments into debt funds during market slowdown and switchback during the upswing. All with zero additional cost and no hassle.

Benefits of Unit Link Insurance Plan

1. Flexibility

When it comes to selecting fund options, ULIPs offer a high level of flexibility. This gives you the freedom to decide where and when you would like to invest. This flexibility brings along the ease of careful fund selection and switching investment variants as per market conditions.

2. Greater Rewards

Your insurance company keeps on adding to your savings through bonuses, thereby helping to grow your corpus. These bonuses are available in different forms like loyalty points, wealth boosters, etc., all if you stay invested for a long period.

3. Goal-Based Savings

ULIPs are uniquely designed investment plans that can help you build a sizable corpus in a disciplined manner. It makes you inculcate a regular habit of saving, thereby taking you a long way in building a good corpus that can help you fulfil your dreams.

4. Tax Savings

Each one of us is looking to save tax and that is obvious. None would want to give up on a huge amount of money on tax when there are several financial goals to meet at hand. The good news is, a simple ULIP investment is there to have your back. Thanks to its eligibility for deduction from taxable income under Section 80C of the Indian Income Tax Act up to Rs. 1.5 lakh per annum.

Summarising

Given the information, ULIPs seem to be a great way to meet your long-term financial goals and also keep your family protected with a life cover. However, this all-in-one solution is subject to a smart and careful selection process followed by timely payment of premium. Further leveraging the flexibility feature, you can also keep on reading about the stock market to stay aware of the ups and downs and keep the risks at bay.

Need professional insights on ULIP investments. Speak to our experts at your nearest Muthoot Finance branch.

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