ULIPs Demystified: A Banking Awareness Guide
by Yuvi K - December 16, 2023
Understanding ULIPs : A Banking Awareness Guide
A Unit Linked Insurance Plan (ULIP) is an insurance-cum-investment policy where a part of the Money collected by you as a premium is invested in the stock market. It is a type of insurance plan which offers both life insurance and market linked investments. ULIPs are one of the many financial products available in the market, and they are gaining popularity over time.
ULIPs provide the dual benefit of life assurance and investment. The premium paid for this product is divided into two parts – one part goes to the insurance component and the other part is invested in financial instruments such as bonds and stocks. The returns you earn are determined by the performance of the market. The risk on your investment is also dependent on the performance of the market.
In this guide, we will help you understand the following:
- What are Unit Linked Insurance Plans (ULIPs)?
- Benefits of ULIPs
- Investment Options
- How to buy a ULIP?
- Conclusion
What are Unit Linked Insurance Plans (ULIPs)?
Unit Linked Insurance Plans (ULIPs) are a type of insurance plan which offers both life insurance and market linked investments. A ULIP policy is a combination of investment and insurance. It is an insurance plan that has embedded elements of investment and provides risk coverage for the policyholder. The premium paid is divided into two parts – one part is directed towards providing life insurance, and the other part is directed towards investing in financial instruments such as stocks and bonds. The returns one earns are determined by the performance of the market, and similarly, the risk is also dependent on the performance of the market.
Benefits of ULIPs
ULIPs offer numerous benefits for policyholders that make them attractive to investors. These benefits are as follows:
- Tax Benefits: ULIPs are eligible for tax deductions under Section 80C of the Income Tax Act. The premiums paid by the policyholder are allowed to be deducted from the taxable income. This makes ULIPs a great option for policyholders who are looking for tax benefits. The returns earned from the ULIP are also tax free.
- Flexibility: ULIPs offer greater flexibility to the policyholders in terms of investment options and policy terms. The policyholder can choose the type of fund they want to invest in as well as the amount of premium they want to pay. Additionally, the policyholder can choose the termination of the policy they want, as well as the duration of the policy.
- Risk Coverage: ULIPs also provide life insurance coverage to the policyholder. The life insurance coverage comes with an inbuilt life cover which can provide security for your loved ones in the case of your untimely death. The life cover is provided at a lower cost as compared to other forms of insurance.
- Liquidity: ULIPs offer greater liquidity than other investment options. The policyholder can withdraw funds from their ULIPs at any time as and when required. The funds can be used to meet any of the immediate requirements of the policyholder.
Investment Options
ULIPs offer a wide variety of investment options to the policyholder. The policyholder can choose the type of fund they want to invest in – equity, debt, hybrid etc. – and the amount of premium they want to pay.
How to buy a ULIP?
Getting a ULIP is a simple process. You just need to fill up the application form and submit it to the insurance company. The insurance company will then review your application and then issue the policy. It is important to remember that you should read the terms and conditions of the policy before buying it.
Conclusion
ULIPs provide policyholders with the dual benefits of life assurance and market-linked investments. They have become increasingly popular among investors due to the numerous benefits they offer such as tax benefits, flexibility, risk coverage, and liquidity. If you are looking for an investment option that provides security and yields returns based on the performance of the market, investing in ULIPs is a great option for you.
