Most middle-class Indians are familiar with the term unit linked insurance plans or ULIP plans. This is because in the absence of any form of insurance support from the government, or any retirement pensions, we are expected to take care of both types of financial planning – insurance and investment. If you are wondering what the connection between this middle-class reality and unit is linked insurance plans, well, its unique features allow you to meet both goals. This is because they offer life insurance benefits while offering growth that is linked to market potential and performance. That’s right. Unlike traditional insurance products, when you opt for the best ULIP plans in India, you can expect them to deliver high sums at the time of maturity, subject to market risk and performance.
Now if this has got you wondering about the various reasons why you should invest in unit linked insurance plans right away, read on.
Key reasons to invest in unit linked insurance plans
No matter which of the best ULIP plans in India you consider, they all offer life insurance. This means that in case of an unfortunate event, your nominee stands to get a certain sum. This is a crucial feature when you consider an increase in lifestyle related diseases and health risks. On the other hand, the survivor’s life span may be as long as 100 years with advances in medical science. This creates a need for adequate insurance cover, which the best ULIP plans in India can offer if you pay a reasonable premium amount.
A key thing to note is that since the sum on maturity or death claim is related to market performance, it typically turns out be beneficial when the gap between the policy’s start date and claim date is several years apart – having benefited from several market cycles, the law of averages can help ensure the sum isn’t too low or impacted by market downturns alone.
Unlike other market-related investment instruments, unit linked insurance plans offer immense tax savings. This is because they are primarily an insurance product, and hence, premium paid is exempt from tax under Section 80 C. Further, the sum received at the time of maturity, too is tax-free. It is important to note though that the maximum limit for tax benefit on the premium is up to Rs.1,50,000 in a single year.
Wealth Creation Potential
If you are torn between securing your family’s future by paying premium on an insurance policy and investing a market-linked product to ensure wealth creation potential, ULIP addresses your dilemma, easily. Unlike term insurance, returns on unit linked insurance plans are linked to the market, and hence, offer immense wealth creation potential. This becomes especially valuable if you have limited funds to meet insurance and investment needs and want to build a large corpus for your family owing to inflation and other factors. However, it is important to not put all your spare cash into a unit linked insurance plans since even the best ULIPs in India can deliver negative returns at times depending on the market performance at the time of your claim.
An important to consider unit linked insurance plans and study the best ULIP plans in India is because they offer debt-equity exposure flexibility. Similar to mutual funds, they let you decide where your investment should go basis your risk appetite. Hence, despite market linkage, it limits your exposure and risk basis your comfort levels and financial goals.
One of the biggest reasons why Indians invest in ULIPs is owing to the liquidity. The mandatory lock-in period is only 5 years as opposed to traditional instruments, where the lock-is is much higher. Therefore, in case of an emergency, or if you feel your insurance and investment needs have changed, you can choose to redeem your unit linked insurance plans. This is a feature that is universal when it comes to ULIP, including the best ULIP plans in India.
Unit linked insurance plans or ULIPs offer multiple benefits. However, it is most ideal when you purchase it after buying at least one term insurance (since it offers a fixed sum assured). Moreover, rather than withdrawing after the mandatory 5 years lock-in, you should consider staying invested for longer to benefit from the law of averages, which is the case with most market-related investments.