Secure is it to Invest in a ULIP Policy

How Secure is it to Invest in a ULIP Policy?


Over the years, United Linked Insurance Plans (ULIPs) have gained immense popularity among retail investors in India. Many people prefer buying ULIP over other life insurance policies because of its long-term savings and investment benefits.

But some people also have reservations about ULIP and feel it is not a safe investment avenue. But many industry experts and financial advisors have corroborated that if people invest smartly, then ULIP is a safe investment option.

Investments in ULIPs are safe in many aspects, which are discussed below:

Free fund switch options

When you invest in a unit linked insurance plan, you have the flexibility to choose the funds you want to invest in. For example, if you have the capacity to take high risk, then you can take an aggressive investment approach and invest a major portion in equity funds. This is a suitable approach when you are young and don’t have too many financial responsibilities.

But if you prefer investing in a risk-averse fund option, then you can invest in debt or hybrid funds or even in bonds. This gives low but steady returns.

You can use the fund switch option in ULIP at any time during the policy term and benefit from the prevailing market condition. This option allows you to switch your investment from one fund to another. Thus, it helps maximise the returns potential.

Partial withdrawal facility

Another significant feature of a ULIP policy is the partial withdrawal facility. You can withdraw the funds from your corpus partially after the five-year lock-in period is over. This allows you to meet your emergency financial needs without taking high-interest personal or credit card loans.

A systematic investment 

When you purchase ULIP, you can choose a regular premium payment mode, where you can pay the premium periodically instead of paying a lump sum amount. You can also choose the payment schedule. It can be monthly, quarterly, half-yearly, or annually.

Thus, it allows you to pay a small amount every month and contribute towards your investment goals. Also, the periodic payment makes it a safe investment as it distributes the risk over a longer period.

Provide valuable returns

If you compare the returns of the various ULIP plans in the policy, historically, then most of the policies have offered returns in the range of 10-12% for an investment term ranging from 10 to 15 years.

Besides, ULIPs also pay additional returns in the form of loyalty bonus, guaranteed additions, etc. The insurance companies offer many incentives to loyal investors who stay invested for an extended period. These rewards can substantially increase the fund value that you get at the end of the policy term.

Reduces your annual tax liability

ULIPs offer many tax benefits. The premium you pay for the policy is eligible for deduction up to ₹ 1.5 lakh in a financial year under Section 80C of the Indian Income Tax Act. The death benefits your family receives after your demise is fully tax-exempt under Section 10 (10D) of the IT Act.

Protects your loved ones 

ULIPs not only help you grow your capital in the long run but also ensure that your family’s financial future is secured even in your absence. It gives your family the financial safety net in the form of a sum assured. If something happens to you, then they can use the death benefit to take care of their everyday expenses and be financially independent.

You must know that the insurance aspect or the sum assured does not affect whether you make a profit or not from your investment in ULIPs. Thus, it is one of the most secured investment options in the market.

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