ULIPs are one of those rare insurance products that offer both insurance coverage and potential earnings from market-linked investments. The premium paid by the policyholder has two components. While the insurance component provides insurance coverage to the policyholder, the investment component is used to grow the investor’s wealth by investing in various market-linked funds.
Besides, the following benefits make ULIPs a natural choice for any investment portfolio:
Transparency
The working of ULIPs is very transparent as they strictly adhere to the rules set by the Insurance Regulatory and Development Authority of India (IRDAI). You can get all the relevant information like key features, free-look period, Net Asset Value (NAV), etc., about the product from its product brochure, which is freely available on the official website of the insurance firm.
Besides, ULIPs also provide benefit illustrations that help a lot in knowing the policy charges, premium usage, and the potential return on the chosen sum assured and premium.
Flexibility in Asset Allocation
The investment component of ULIP offers a lot of flexibility in asset allocation as per the investor’s choice. You can choose from five to seven different funds based on your risk appetite.
For instance, you can choose a fund that predominantly invests in equities if you are ready to take higher risk for potentially higher returns. Alternatively, you can select a fund with greater emphasis on debt instruments if you are risk averse.
Top-Up Options
Whenever you get a surplus amount, you can use it to purchase top-ups over and above your existing premium. This is an excellent way to accumulate more units and increase the potential of growing your investments faster.
Tax Benefits
Section 80C
Under this section, you can claim an income tax deduction of up to Rs 1.5 lakh against the amount paid towards ULIP premiums in a financial year.
Section 10 (10D)
Under this section, you can claim tax exemption on the total maturity amount of your ULIP if the annual premium paid during the entire policy tenure never exceeds Rs 2.5 lakhs for any year.
Partial Withdrawal Benefits
The IRDAI rules allow three partial withdrawals during the entire ULIP tenure after the 5-year lock-in period to meet specific personal requirements such as
- Children’s college admission or their wedding
- Purchasing property
- Critical illness
The withdrawal amount depends on your insurance service provider and your policy type. Additionally, the amount you withdraw will be tax-exempt, subject to the rules under Section 10 (10D) of the Income Tax Act, 1961.
Tax-Free Death Benefits
In the unfortunate event of the policyholder’s death, the nominee will not have to pay taxes on the proceeds received from the ULIP.
In a nutshell, ULIPs not just help create wealth in the long run, but they can also financially protect your family in your absence. Moreover, they help you develop the necessary financial discipline to achieve your long-term goals through systematic investments.
With so many benefits bundled in a single product, ignoring ULIP investments might not be a wise decision for any individual.
Read more to know about Unit-Linked Insurance Plans: https://www.kotaklife.com/online-plans/ulip-plan
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