While building your financial portfolio, there are several things you need to keep in mind. You should ensure the two most essential avenues to take care of our insurance and wealth creation. If you wish to hit both targets with one stone, a product like a ULIP would be ideal. It offers a mixture of life insurance and wealth generation with unique offerings. While ULIPs are versatile as investment products, they are best when utilized to meet one’s long-term financial goals. Let us see how.
How does a ULIP work?
A ULIP works similarly to the mutual funds category, except that here, you also have an insurance element. One portion of your ULIP premium is invested in the financial instrument of your choice. Depending on your share in the invested amount, you are allotted units. The performance of the teams in the market determines the returns you receive. If you are wondering what your fund’s plausible returns could be, you can take the help of a ULIP return calculator to get an estimate.
Another portion of your premium is directed toward building the life cover. If an unfortunate event leads to your demise, your nominee/s will receive this life cover.
ULIP features that can help you achieve long-term goals
Multiple fund options
A ULIP offers several features, such as getting the chance to invest in multiple fund types. If you are a risk-averse individual, debt instruments may be more of your choice. Equity instruments may be the right option if you have a more significant risk appetite. The returns, too, depend on the asset class you choose. Low-risk debt funds bring lower returns, while high-risk equity funds bring more returns. You can select the asset class depending on the amount you wish to achieve in the long term.
Thus, with the proper understanding of the asset class, you can efficiently use a ULIP for wealth generation.
The option of switching funds
Earlier, you may have had a smaller amount in mind for your future, maybe an amount that is equivalent to making a long-distance domestic trip. However, now, you may wish to make a long-distance international journey somewhere in the future. Switching funds within your ULIP policy can help you bridge the distance between these goals. If your money is in debt but feels it may perform better in equity, you can easily ask the insurer to make the switch. On the other hand, if you think the market will not perform well for the next couple of weeks/months, you can shift the equity investment into debt instruments. A ULIP return calculator can also help you understand how each asset class might affect the maturity benefit.
This optAsidelping, you make the most of your funds. Also, a healthy option is your invested amount to glide over the short-term market ups and lows and become stable over a long time.
5-year lock-in period and partial withdrawals
A ULIP has a lock-in period of five years; only after you have completed this period can you make any withdrawals on your ULIP plan. There are several benefits to this. Firstly, you learn financial discipline as it inculcates the habit of investing a particular amount every year, even though the returns may not be immediately available. Secondly, the 5-year period helps your invested fund earn a good return without interference from short-term withdrawals. This is ideal for those looking to make money with a long-term approach rather than a short one.
Furthermore, if you wish to receive systematic withdrawals from your ULIP plan, then you can do so once the lock-in period is over.
Long-term tax-saving benefits
While the premiums of your ULIP policy are eligible for tax deductions up to Rs 1.5 lakhs, the various payouts and partial withdrawals are eligible for tax exemptions. This is subject to amendments in tax laws and is dependent on terms and conditions ons. Sett with your tax consultant and factor in ULIPs when creating a long-term tax-saving strategy.
Life cover allows for sustainable peace of mind.
In their attempt to focus on the functions of a ULIP for wealth generation, many people overlook that it is an insurance product. Thus, it helps you achieve peace of mind in the long run, allowing you to focus on the daily tasks without worrying about what would happen to your loved ones in the event of your demise.
