How secure is it to invest in a ULIP policy?

There are several investment options available for investors these days. For every individual’s financial needs, there is a product available that specifically caters to those needs. However, it is possible that if you invest in a product, your needs may evolve or change over the years. Most financial instruments cannot fulfil these changing needs. There is one instrument that is specially designed to meet the needs of different investors and it also allows investors to change their investment as and when their needs evolve. This instrument is a Unit Linked Insurance Plan (ULIP).

What is a ULIP policy?

ULIP is a type of life insurance that offers investment options in the same plan. When you purchase a ULIP, the premium that you pay is used towards providing life insurance along with investing in funds that you choose. The insurance part is simple: Being a policyholder, you get a life cover for the tenure of your policy. This means that in case of your sudden demise during the duration of the policy, the nominee of your policy will receive the sum assured.

It is important to know how life insurance and investment work in ULIP before buying one. The investment component of ULIP has several elements involved. If you are looking for a secure investment, here is why a ULIP might be a perfect choice.

What makes ULIP a secure investment?

ULIPs are designed in such a manner that they meet the needs of every investor. They have distinguished features that make them a secure investment for meeting the needs of every investor. Here are some features that make ULIP a safe yet profitable investment:

  • Offers several funds based on policyholder’s risk appetite
    When you buy ULIP insurance, you may choose your fund allocation. This is done usually based on your ability to take risks. While there are several types to choose from, you can broadly divide your fund into three categories: equity, debt, and balanced funds. Equity funds are high risks that often offer high returns. If an investor is looking for a safer fund, there are debt funds. They have low risk and comparatively lower returns. If an investor wants to strike a balance, they can choose a balanced fund comprising both equity and debt. They offer moderate risks for moderate returns.
  • Switch between different funds anytime you want
    At every stage of your life, you will have different needs. Your investment needs in your 20s would differ from that in your 30s or 40s. ULIP insurance allows investors to switch their fund allocation anytime they want. You can switch from debt funds to equity funds and vice versa anytime you want. Since ULIPs are market-linked products, this enables you to make the most of the market fluctuations. The ability to switch between funds is one of the rare features of a ULIP. You can track the performance of your fund by checking its Net Asset Value (NAV).
  • Compounding accelerates wealth generation for the long haul
    You require funds to fulfil your long-term goals, be it buying a new house, funding your child’s education, traveling, or accumulating funds for your retirement. Individuals need to save in a disciplined manner to meet these long-term goals. With a ULIP, you invest repeatedly over time when you pay premiums. The recurring investment leads to compounding, where you earn interest not only on the principal amount but also on the interest earned in the previous months. When your plan matures, the NAV that you receive will help meet your long-term goals.
  • Tax benefits on multiple levels
    When you are looking for investment options along with several other factors, one major factor you need to consider is its tax implication. ULIP is a secure investment that offers tax benefits on multiple levels. The premiums of your ULIPs are exempt from taxes under section 80C of the Income Tax Act. Also, the maturity amount is subjected to tax exemptions if certain conditions are met. The death benefit that your nominee will receive in case of your sudden demise is also exempt from taxes under Section 10 (10D) of the Income Tax Act.