Buying a life insurance policy is essential for creating a sound financial plan for your family. Life insurance takes care of your loved ones’ needs if you cannot be there due to an unfortunate event. However, when buying a life plan, you must also ensure to maximize your profits. A Unit-Linked Insurance Plan (ULIP) can help you with that. Read on to understand what is ULIP to help you make an informed decision while purchasing it.
What is a ULIP?
A ULIP is a combination of a life insurance policy and investment instruments. The investment funds can be debt-based, equity-based, or balanced, depending on the types of ULIPs you choose. You can even alter between equity and debt funds depending on the market situation or your changing risk tolerance.
As ULIPs connect life insurance with wealth accumulation, they offer value for money. However, you can still lower your expenses further by following simple strategies, like:
- Buying the ULIP online
When you invest in a ULIP through an agent, you end up paying a higher premium. This is because your policy’s premium includes the commission that the agent receives after selling you the plan. You can save on this cost when purchasing the ULIP online.
The ULIP performance does not depend on whether you buy it from an insurer’s office or their website; hence, you can easily opt for the cost-saving option. Buying the policy online can save you up to 20% on the cost compared to an offline purchase. As an added advantage, when you purchase a ULIP online, it is easier to compare different plans to find the most suitable one.
- Being patient with your ULIP investment
As already mentioned, the ULIP performance depends mainly on the market situation. For this reason, you must consider long-term investments with ULIPs. When you keep your money invested, it gets time to grow and create a fortune for you. Short-term returns from equity or debt funds may not help with significant financial goals. This is why experts recommend that you start investing as early as possible.
If you buy a ULIP in your 20s or early 30s and keep the investment until you are 60, you can retire with substantial wealth. A ULIP bought in your 50s will be costly and may not benefit you much.
- Planning for a long duration
When you purchase a ULIP, long-term planning is crucial. If you are looking for quick returns, ULIPs may not be the right policy for you. To earn respectable profits from a ULIP, you have to be calm and not get influenced by the market’s volatility.
The best strategy to ensure excellent ULIP performance from the investment is to wait and watch the changing market. This way, you can switch between equity or debt funds, depending on their performance over the years and maximize your profit. This strategy allows you to grow your wealth over time, even with a low initial investment and helps you save money.
- Saving tax
One of the best things about all types of ULIPs is their tax-saving properties. Under Section 80C of the Income Tax Act, 1961, you can claim an annual tax deduction of up to INR 1.5 lakh on the premium paid towards your ULIP. Additionally, the ULIP’s maturity benefit is eligible for tax exemption under Section 10(10D) of the Act. These tax deductions lower your overall expenses and make the policy more profitable.
Choosing the right ULIP is important to ensure that it helps you achieve your financial goals. This is why you must take your time comparing the costs and benefits of different ULIPs before settling on one.
