ULIP for Wealth Creation

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Unit-Linked Insurance Plans (ULIPs) have become a popular investment option in India. These policies offer dual benefits of investment and insurance. ULIPs can provide you with long-term returns, making them a popular choice for those looking to create wealth over a period of time. Let's better understand how you can use a ULIP for wealth creation.

ULIP for Wealth Creation

ULIPs are typically long-term investments that help you create wealth over a period of time. It is a life insurance product that provides investment avenues to build long-term wealth. The premium you pay gets divided into two parts. A small portion goes towards offering insurance coverage. The rest gets invested in various funds that you select.

ULIPs offer the flexibility to choose the investment option based on your risk appetite and financial goals. You can invest in a ULIP to meet various long-term financial goals, such as buying a house, securing retirement, or funding your child's higher education.

Types of ULIP Plans Offered for Wealth Creation

Insurance companies offer various ULIP plans for wealth creation. Let's learn more.

• Equity Fund ULIPs

  An equity ULIP invests your premium in stocks and equity-related instruments. Investments in high-performing companies have the potential to earn higher returns in the long run. It is an ideal option for those who are willing to take risks and want to invest in the equity market.

• Debt Fund ULIP

  A debt fund ULIP invests your premiums in fixed-income securities such as bonds and debentures. It is a low-risk investment option with stable returns. It is an ideal option for those who have a low-risk appetite and want to invest in fixed-income securities.

• Balanced Funds ULIP

  A balanced funds ULIP invests your premiums in both equity and debt instruments. It provides a balanced approach towards wealth creation by balancing the risk-reward ratio. It is an ideal option for those who want to invest in both equity and debt instruments to create wealth.

• Child-Focused ULIP

  Insurance companies today offered ULIPs that focus on building wealth for your child's future needs. It provides long-term investment options along with insurance coverage.

How Does ULIP Help in Wealth Creation?

ULIPs offer several benefits that help you create wealth over a period of time. Here's how ULIPs help with wealth creation:

• Power of Compounding

  ULIPs offer the power of compounding, which reinvests the returns generated from the investment. Compounding helps you earn returns on your investment and the returns. It enables you to create wealth over a period of time, as long as you stay invested.

• Long-term Investment

  Insurance companies designed ULIPs as long-term investment plans. When you purchase a ULIP, you stay invested for longer, which helps you earn higher returns.

• Flexibility to Switch Funds

  ULIPs let you switch between investment options based on your risk appetite and financial goals to maximise returns based on market fluctuations.

• Insurance Coverage

  ULIPs offer life insurance coverage with investment options, securing your family's financial future.

What Are the Benefits of ULIP for Wealth Creation?

ULIPs are a versatile investment option that helps you meet your financial goals, including wealth creation. Here are some of the benefits of choosing a ULIP for wealth creation:

• High Return Potential

  ULIPs can provide high returns depending on their equity exposure. With a ULIP, you can invest in a mix of equity, debt, and other funds to diversify your investment and potentially earn higher returns.

• Flexibility

  ULIPs offer a high level of investment flexibility. You can choose the investment plan that suits your risk appetite and make fund switches based on your investment strategy. Additionally, ULIPs offer partial withdrawals after the completion of the lock-in period.

• Tax Benefits

  ULIPs offer tax benefits under Section 80C^# of the Income Tax Act, which allows you to claim a deduction of up to INR. 1.5 lakhs on the premiums paid.

  Proceeds received on surrender/partial withdrawal/maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D)^# i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

  In addition to the above, for policies issued on or after 1^st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.

  Income from rest of the policies exceeding the mentioned limit will be chargeable as capital gains.

  The death benefit sum assured paid to beneficiaries is tax-exempt.

• Life Insurance Coverage

  ULIPs offer life insurance coverage along with the investment component, protecting your family's finances. The life insurance coverage provides a lump sum payout to your nominee in case of your untimely demise.

• Long-term Investment

  ULIPs are long-term investments, making them ideal for wealth creation. With a longer investment horizon, you can invest in equity funds, which offer higher returns over the long term. Additionally, ULIPs have a lock-in period of five years.

• Wealth Transfer

  Insurance plans like ULIPs offer the option of naming a nominee who will receive the accumulated wealth in case of your demise. It ensures that your wealth transfers seamlessly to your loved ones without legal hassles.

How to Choose the Right ULIP for Wealth Creation?

Choosing the right ULIP plan can seem overwhelming. However, you must ensure that you meet your investment goals. Here are some factors to consider when choosing a ULIP for wealth creation:

• Investment Objective

  Choose a ULIP that aligns with your investment objectives and risk appetite.

• Fund Performance

  Look for a ULIP with a good track record of fund performance over the years.

• Charges

  Understand the charges associated with the ULIP plan, such as premium allocation, fund management, mortality, and policy administration charges.

• Flexibility

  Identify a ULIP plan that offers flexibility with fund switches and premium payment options.

• Insurance Coverage

  The ULIP should offer adequate insurance coverage to protect your family's financial goals.

ULIPs can help you invest and create wealth over the long term. Before investing, choose the right plan that suits your investment goals, risk appetite, and financial objectives. Ensure you check the policy terms and conditions before investing.

Related Article

• Investing in ULIP Plans - Things You Must Know
• Complete Comparison of ULIP Plans
• Meaning of Sum Assured in a ULIP

ARN - MC/06/23/2689