ULIPs or Unit Linked Insurance Plans have been around for quite some time, but with the recent iteration, the fourth generation (or 4G) of ULIPs, these products have come into their own. Modern ULIP insurance is a lucrative option for a wide variety of customers, and that has led to their resurgence. If you have not heard about them or don’t know how ULIPs work, we have you covered.

In this article, we will take you through the exciting landscape of modern ULIPs, so you can discover their potential benefits for your portfolio.

What Is ULIP Insurance?

ULIPs are a hybrid of investments and insurance that provide the policyholder with life cover for a sum assured as well as an opportunity to invest in financial instruments. They are ideal for those who are looking to provide financial security to their loved ones and, at the same time, are looking for opportunities for wealth creation.

How Do ULIPs Work?

As these are insurance products that have an element of investments, there are two sets of parameters that must be understood. One is the trinity of the policy term, sum assured, and the premiums you pay towards that, and the other is the investment in market-linked financial instruments.

The premiums that you pay towards the policy are invested in the market-linked investment instrument of your choice after the applicable charges are deducted. This can be calculated using a free online ULIP calculator. That estimate can help you in choosing the right policy option.

As far as the investment options are concerned, there are a diverse pool of funds comprising of Equity, Debt, a balance/combination of the two, and liquid funds. You are free to choose any of these as per your risk appetite. But do not be alarmed at the prospect of making this choice. If you are not very market savvy, some insurance companies provide the option to let them manage your fund and make these decisions. This way, you can maximize your gains through their expertise.

Finally, there is a lock-in period of 5 years, as stipulated by IRDAI (Insurance Regulatory and Development Authority of India), during which you cannot withdraw from the corpus that is accumulated (but switching your investment between the funds is possible), but once that is over, you are allowed to make partial withdrawals from the corpus.

Benefits

  • Compounding - It refers to the growth of your money over time by re-investing the accumulated funds periodically. If you start early, these can be hugely beneficial.

  • High Corpus - As with any other investment or insurance product, if you get ULIP insurance early, you stand to accumulate the maximum wealth and create a large corpus over a period of time.

  • Varying Risk Factors - ULIPs are designed to cater to a wide variety of investors, from those willing to take higher risks for the promise of higher returns to those in the game for slow and steady gains. There is a fund for everyone. If you happen to be the former of the two, you can go for an Equity-based fund. If you’re the latter, debt or a balanced fund would be a better choice. Note that if you get in early in your life, you have the advantage of time, and an equity-based option can pay off greatly in the long run.

  • Savings Habit - Insurance products, in general, are a great way for young investors to cultivate a habit of savings. ULIPs go a step ahead with the opportunity to learn about the markets too.

  • Tax Benefits - On account of primarily being an insurance product, ULIP insurance provides tax benefits to the policyholder under section 80C of the income tax act of 1961. Under this, the premiums paid towards the policy, up to ₹1.5 lacs, are tax-free and can be deducted from the total taxable income annually.

  • Flexible - You are free to change the fund you invest your money in if it is not performing as per your expectations. These switches are free of cost (up to a certain number, and in the case of some companies, they are unlimited). This makes ULIPs highly flexible, especially for those who can keep a keen eye on the markets.

  • Systematic Withdrawals - As mentioned above, ULIP insurance allows for partial withdrawals from the accumulated corpus after the lock-in period, which can be a great thing in times of need.

Are ULIPs Ideal For You?

ULIPs can serve many purposes, from aiding your retirement plan to funding your child's education; they are great long-term financial plans. Add to that the life cover, and you have a comprehensive insurance policy that doesn’t skimp on any count.

Conclusion: Are ULIPs The Future Of Investing?

The landscape of investing is constantly changing, and ULIP insurance has definitely adapted well to it and tapped the right nerve of investors. They can certainly play a crucial role in shaping your future, and you should not hold yourself back from getting one for yourself right away. The earlier, the better!