ULIP plans are excellent investment options for the long term. Most industry experts and financial planners would vouch for this statement quite strongly. And why not? ULIPs (unit-linked insurance plans) have become some of the most popular investment options in most portfolios. What is ULIP?\ The plan offers the ideal combination of life coverage and investments in market-linked instruments (equity, debt, or balanced funds) for meeting future goals. These options have evolved considerably throughout the country from earlier years. They have now become more investor-friendly and are easy to buy and manage.
It is also pertinent to mention that ULIPs are more affordable for customers today owing to their reasonable premium and fund allocation charges. At the same time, they can be bought swiftly with minimal hassles. Most ULIPs have lock-in periods of five years, although if you wish to get the benefits over a sustained duration, then you should ideally stay invested for as long as possible. Why are they great long-term investments? This is what we will discover in this article.
Why ULIP Plans are Ideal Long-Term Investments
ULIP plans are great long-term investments for the following reasons:
- Disciplined Investing and Savings- ULIPs have 5-year lock-in periods, which means that you cannot withdraw the money whenever you wish without incurring hefty penalties/charges in some cases. At the same time, the earlier you begin investing, the more you can accumulate as your future corpus over a sustained duration. These investments inculcate savings and investment habits in every individual, with premiums having to be kept aside each month or annually. Maintaining the investment for a longer policy tenure automatically transforms you into a more disciplined investor who focuses extensively on future savings.
- Tax Benefits- The best part about investing in ULIP plans is that you get handsome tax advantages every financial year. The premiums that you pay are tax-deductible up to Rs. 1,50,000 under Section 80C. At the same time, Section 10 (10D) ensures tax exemption of the sum assured paid to your nominees in case of a death claim. If it is a maturity benefit to a policyholder who is alive at the time of the conclusion of the tenure, then the amount is only exempted if the annual premium does not exceed Rs. 2.5 lakh.
- Attractive Investment Returns- Investing in a ULIP will give you a chance to get attractive returns on your investment for the future. ULIPs have the potential to comfortably surpass inflation in the long run. In an ideal scenario, you should stay committed towards wealth creation over 7-10 years or more to achieve these returns. This will balance out temporary market fluctuations and other movements while averaging your per-unit cost for higher returns. At the same time, you will also benefit from the power of compounding, which can do wonders for any investment over a longer tenure. The accompanying ULIP charges will be balanced out by the stellar returns if you stay invested for more than a decade.
- Flexibility for Investors- ULIPs also come with another benefit, i.e. ample flexibility for any investor. This is ensured by two key features that you should know about. Firstly, you can flexibly choose your funds at the beginning of the policy. This means that you can assess your risk appetite and allocate funds across equity and debt, depending upon your temperament, future goals, and other factors. Secondly, ULIPs enable fund-switching periodically throughout the policy tenure. This lets you periodically evaluate your portfolio and change fund allocation based on market conditions and changing goals. Suppose there is a bearish scenario in the market. In this case, you can shift more towards debt funds in order to safeguard your portfolio. In bull markets, you can buy more equity to benefit from it later on.
Many insurance companies also sometimes return the mortality charges that are deducted throughout the policy tenure. These are loyalty bonuses/rewards for customers completing the policy tenure and staying invested for the long haul. These are bonuses that naturally add to your final returns from the investment at the time of maturity. You can also rest assured that your nominees will either get the sum assured (fixed at the beginning of the policy) or the fund value (whichever is higher) in a Type 1 ULIP if you pass away in the policy period. The insurance company pays out the sum assured for a Type 2 ULIP.
Naturally, you can set up a future financial safety net for your family while investing to achieve future goals like buying a house, higher education for children, weddings, retirement planning, and more. You can also add riders to your policy to cover more unforeseen scenarios, subject to the additional premium payment. All in all, ULIP plans are unparalleled when it comes to the best and most practical long-term investment options.
