Financial planning requires you to invest in instruments that offer substantial returns along with products that financially protect your loved ones. Usually, you need to invest in several different instruments to meet these two financial goals. In recent years, however, a product has managed to meet these two goals in a single plan. The product is Unit Linked Insurance Plan (ULIP).
For most people, the meaning of ULIP is a unique plan that offers life insurance and investment opportunities in a single cover. Similar to any other life insurance, you get a life cover when you buy a ULIP. However, that’s not all. You also get an investment opportunity where you can invest in funds you like. You have to pay premiums like any other life insurance. However, in ULIP, your premiums are partly used for providing you with a life cover and partly invested in funds of your choice. Read further to understand the 5 reasons why ULIPs should be a part of your portfolio.
5 reasons why ULIP are a must-have in your portfolio
- Provides financial security
ULIP is a type of life insurance and hence, you can rest assured that when you buy one, you are securing your family’s future. It creates a much-needed financial backup that your family can rely on in case you lose your life during the policy duration. Having the financial future of your family taken care of in your absence, you can rest assured that your family may not face any financial turmoil. When you buy a ULIP, use tools like a ULIP calculator and ensure that you choose sufficient coverage for your family. The coverage amount should be enough for them to lead a good quality of life in your absence. Also, ensure that you take any liabilities that you may have into consideration while choosing your coverage.
- Investment opportunities
The meaning of ULIP is quite simple — one half is life insurance, and the other half is an investment component. This structure of the plan has made it popular amongst several individuals. Half of the premium you pay for your ULIP is invested in funds of your choice. You can choose from a variety of funds depending on your risk appetite and financial goals. The three broad categories you can invest in include debt, equity, and balanced funds. If you are looking for an investment that offers huge returns but bear huge risks as well, equity funds are your bet. If you are looking for a safer investment that you may not need to track constantly, a debt fund would be a better choice. There are balanced (or hybrid) funds that allow individuals to invest in equity and debt funds in a single plan.
- Potential to offer huge returns over the years
Investors who stay invested in ULIP for the long haul and invest in a disciplined manner can multiply their returns over the years. The plan allows individuals to meet their long-term financial goals and also offers the benefit of compounding. With compounding, an individual not only receives interest on their investment but also on their previous returns over the years. Also, with it is easy to track your ULIP investments online by simply logging in to your insurance company’s portal. While choosing the funds you want to invest in, ensure that you have used a ULIP calculator to get an estimate of the returns you are likely to make.
- Allows you to switch funds and redirect funds
The two features of ULIP plan that can make it a must-have amongst investors are fund switching and premium redirection. Since ULIP is an investment for the long haul, there are chances that over the years, your investment goals would change. In such cases, you can switch your entire fund value from debt to equity or vice versa. Having such a feature allows you to change your investment strategies if the funds you have selected are incurring losses.
Also, with premium redirection, you can change the funds that you want to invest in. For example, if you were earlier investing in debt and now you want to invest in equity, you can simply redirect your premium to the equity fund that you want to invest in.
- Acts as an emergency fund
ULIP comes with a lock-in period of 5 years which restricts any withdrawals during that period. However, once that period has ended, you can withdraw funds from your ULIP anytime you want. This ensures that you have an emergency fund that you can tap into whenever you need money urgently.
Apart from the 5 unique benefits mentioned above, ULIP also offers several tax benefits. Since ULIP is a type of life insurance, you get all the tax benefits that any other life insurance would provide.