Important Reasons Why You Must Consider ULIP As an Investment Option


ULIP, or Unit Linked Insurance Plan, is one of the most popular types of life insurance plan. What distinguishes it from the rest of the plans is its hybrid nature. It offers both insurance protection and investment opportunities. When you pay the premium for ULIP, the insurer divides it into two parts. One part is used for providing insurance protection, and the other part is used for investment in different money market instruments to help you accumulate wealth in the long run.

If you are sceptical about investing in ULIP, here are a few important reasons you must consider having it in your portfolio.

Double benefits

One of the most significant benefits of ULIP investment is that it is the only financial tool that offers dual benefits of insurance and investment. This means it allows you to build wealth for your long-term goals while securing your family’s financial future. Thus, you need not buy a separate insurance and savings plan and save a significant amount on the premium. Also, with a single investment, you can manage your finances better.

Flexibility in investment

ULIPs offer great flexibility in terms of investments. You can use the fund switch option to move your investment from one fund, such as equity to debt or vice-versa, based on your changing financial goals and risk appetite during the investment course. Also, you can leverage the market movements and increase or decrease the investment in a specific asset class to maximise the return potential.

Also, many insurance companies in India allow ULIP policyholders to purchase top-up plans. This allows you to invest more money in your existing savings.

Lock-in period

ULIP comes with a lock-in period of five years. This means you cannot withdraw funds from your accumulated savings until the end of the lock-in period. While many may consider it a drawback, it is actually a blessing in disguise. The lock-in period allows you to stay committed to your long-term goal and continuously invest and contribute towards your savings through premium payments.

Also, many insurers nowadays allow ULIP policyholders to withdraw money from their accounts during the lock-in period for emergency purposes. However, the insurer may charge a specific fee for it and deduct it when you withdraw.

High returns potential

When you compare ULIP to other traditional investment options like bank fixed deposits or recurring deposits, the former offers significantly higher returns. You get higher returns because you have the flexibility to invest in different funds of your choice. Also, when you invest in ULIPs, you are eligible to get certain bonuses and rewards for staying invested for a long period. Some insurers also provide loyalty additions annually, which increases the overall returns.

Historically, ULIPs have offered returns in the range of 10-12% over a long-term investment tenure of 10 years or more. This is much higher compared to FDs, which range between 4% to 6%.

Tax benefits

Like other life insurance policies, the premium you pay for ULIP is eligible for tax benefit under Section 80C of the Indian Income Tax Act. You can get a deduction of up to Rs. 1.5 lakhs in a financial year. Similarly, the returns you get during policy maturity are tax-free under Section 10D of the IT Act. In addition, in the event of your demise, when the insurer pays the death benefit to your family member, they need not pay any tax on it as it is tax-exempt under Section 10(10D).

Final Word

Thus, with so many benefits of ULIP investment, it is a worthy investment to have in your portfolio.