How ULIP insurance can enhance your financial portfolio

A Unit Linked Insurance Plan (ULIP) might have been a part of the industry for a long time. A ULIP plan is a dual-benefit product, which was introduced in 1971. Since it can club investment and insurance under a single integrated plan, it can form an essential part of your financial portfolio. Therefore, let’s understand how a ULIP policy can enhance your financial portfolio:

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  1. Dual benefits

A ULIP policy can comprise of two essential components:

Under a ULIP policy, the insurance element can offer financial protection to your loved ones in your absence. As the nominees, your loved ones can receive death benefits to maintain their current standard of living. The death benefits can be obtained from the insurer either as a monthly payout or a lump-sum amount.

  • Investment

The investment aspect of a ULIP policy can let you participate in the capital markets. A ULIP policy is a market-linked product, which can allow you to accumulate wealth as well as earn better returns.

  1. Better returns

Many of you might choose a ULIP policy to generate relatively high returns. However, a ULIP policy can offer you with returns based on the selection of funds as well as your risk appetite. As a policyholder, you should choose the top performing ULIP funds to receive returns. Typically, you can select between the following:

  • Equity funds

An equity fund can be a high-risk option since it is linked to the market. If you have minimal financial responsibilities and high-risk appetite, you should invest in equity funds. Investment in equity funds can help you to obtain relatively high returns based on the performance of the market.

  • Debt funds

Debt funds are less risky. If you have high financial responsibilities and a low risk-appetite, you should choose a debt investment. When you invest in debt funds, you might receive low returns.

  1. Flexible premium frequency

Premium payment can be an imperative aspect of a ULIP policy. Ideally, you should pay the premium amount regularly in return for the life coverage offered by your insurer. However, failure to make the premium payment can lead to the termination of your ULIP policy. Therefore, see to it that you choose the premium payment frequency wisely based on your current financial situation and convenience. As a policyholder, you can be allowed to make the premium amount quarterly, monthly, half-yearly, and annually.

  1. Switching feature

Since a ULIP policy is a market-linked product, you might fear the market downfall. Market volatility can stop you from reaping the benefits of a ULIP policy. Therefore, a ULIP policy can allow you to choose a switching feature to secure your invested capital from the fluctuation as well as shift between equity fund and debt fund. As an investor, you should analyse the market scenario and avail the switching feature accordingly. For instance, you can choose a debt fund when the market is down and go back to equity fund when the market bounces back.

  1. Tax benefits

One of the biggest advantages of a ULIP policy can be the ability to reduce your tax liability. Since a ULIP policy falls under the Exempt-Exempt-Exempt (EEE) category, you can receive tax benefits according to Section 80C and Section 10(10D) of the Income Tax Act, 1961 on ULIP insurance:

  • Section 80C

Under Section 80C, you can be liable to claim a deduction up to Rs. 1.5 Lakhs on your taxable income.

  • Section 10(10D)

The pay-out received after the maturity date can be tax-free as per Section 10(10D).

To sum up, a ULIP plan can allow you to build your financial portfolio due to the benefits mentioned above. Although a ULIP policy can provide you with many benefits, you should not choose it solely due to low premiums. Before you purchase a ULIP policy, you should conduct thorough research and consider your financial goals. That way, you can ensure that the selected ULIP policy aligns with your goals and allows you to meet your life goals.