Investment returns from a ULIP might not be guaranteed. The policyholder will receive gains or losses depending upon the fund he/she chooses. Thus, a person should keep in mind that he/she might not receive profits by investing in a ULIP.
Read on to know more about it.
A unit linked insurance plan that is ULIP is an insurance as well as an investment product. The premium paid by the policyholder is divided into two parts- one part goes to insurance and the other part is invested in investment instruments. A ULIP invests in equity funds, debt funds, etc. The policyholder has the option to choose the funds.
A part of the ULIP premium is invested in the equity market. This is the main reason why returns aren’t guaranteed. A ULIP is exposed to market risks. Therefore, by investing in a ULIP, a policyholder needs to bear the investment risk. Hence, he/she will receive gains or losses based on the ULIP chosen. Furthermore, the policyholder needs to know that the past returns of a fund don’t indicate its performance in the future.
With that in mind, here are things that you should know about ULIPs-
- ULIPs Offer Flexibility
A policyholder can choose to invest in equity funds, debt funds, etc. based on his/her risk appetite. If a person has a high-risk appetite, then he/she should consider equity funds. This is because equity funds can provide higher returns.
- ULIPs Can Help Achieve Long-Term Goals
If a person is looking for long-term investments, then a ULIP can be a great option. A policyholder can achieve various long-term financial goals, like saving for retirement, accumulating funds for his/her child’s education, etc.
- ULIPs Offer Investment and Insurance Benefits
While a ULIP can provide investment returns, it also offers life insurance cover. This is because a part of the ULIP premium goes for life insurance. Whereas, the other part is invested in investment instruments. This way, a ULIP can be an extremely beneficial investment option as it can provide the sum assured to the family of the policyholder. The insurer can provide the sum assured in case the policyholder meets with an untimely demise. Hence, a ULIP can provide financial security to the insured person’s family.
- ULIPs Provide Tax Benefits
The premium paid for a ULIP is eligible for a tax deduction under Section 80C. Therefore, if a person is looking for an investment option that provides tax benefits, then he/she should consider investing in a ULIP.
- ULIPs Offer a Top-Up Option
A ULIP allows a policyholder to add an additional amount to his/her existing premium. This plan provides the insured person with the benefit of a top-up option. This way, a policyholder can increase the premium in order to gain more returns.
- ULIPs Provide Premium Payment Flexibility
A person can invest in a ULIP using various premium payment options. There are ULIPs that allow policyholders to pay premiums annually. Also, there are ULIPs that allow people to pay premiums monthly. Furthermore, there are ULIPs that provide a lump sum premium payment option.
- ULIPs Offer Switching Options
A ULIP allows a policyholder to switch between funds. However, a policyholder needs to keep in mind that a few ULIPs have a limit on the number of switching options.
In conclusion, ULIPs can be a great investment option. However, policyholders will have to take risks by investing in them as they are affected by the conditions of the market.