Unit Linked Insurance Plan, more popularly known as ULIP is a life insurance product that provides insurance along with investment. Investment is offered in options such as FDs, stocks and mutual funds. ULIP has an edge over traditional insurance policies as it provides the policyholder with the opportunity to invest in a number of eligible investments along with the freedom to customize the plan according to their needs.
Like all insurance and investment policies, ULIP has a number of desirable features.
For first time investors
The FD-oriented investors are slowly moving towards mutual funds and insurance policies. With a change in investing pattern, choosing a market-linked instrument like ULIP makes sense for new investors. If not equal, the returns are at least comparable with mutual funds in the long-term. A first time investor, willing to take minimal risk of getting into stock market, can choose from a myriad of market-participating plans. All he needs to know is his investment horizon and the goal attached to it.
You can change the proportion of premium allocation to life insurance and investment according to changes in your needs and requirements. ULIPs are flexible as they also allow you to switch between your investment funds with relative ease. You even have the option to withdraw a part of your funds if the need arises, subject to certain terms and conditions.
Although term insurance plans fulfill the life cover and tax-saving parts, they do not offer any return. ULIPs, besides the tax advantage of up to Rs. 1.5 lakh under Section 80C of the Income-tax Act, 1961, can be instrumental for long-term goals. It offers minimum sum assured equal to 10 times the annual premium for investors below the age of 45.
In ULIPs, a fraction of the premium goes towards your life cover while the remaining is invested in equity and debt schemes. Hence, you can avail the benefits of both insurance and investments in the same product.
In conclusion, I believe that ULIPs can be great wealth creating tools for the long-term because of the diversity of funds offered. And they are ideal for those who want to start young to ride on the equity advantage.
Rahul Jain, Head, Personal Wealth Advisory, Edelweiss