Is a ULIP plan a good investment during COVID-19?
23th January 2021
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
The ongoing pandemic has made people more aware of their mortality and the importance of COVID-19 insurance has become much clearer. Simultaneously, many are keen on saving up for a rainy day, since the pandemic brought about many financial uncertainties like job losses or pay cuts. COVID-19 has definitely curbed impulsive buying for most of us, but this is the ideal time to start investing. One volatility beating investment option with good returns is a unit-linked insurance plan.
Are ULIPs a good investment during COVID-19?
ULIPs are a uniquely positioned financial product that can help individuals meet both these requirements. Unit linked insurance plans are a hybrid investment and insurance product for the same premium. Part of your ULIP premium goes towards your life insurance. The latter part of it goes towards investing in market-linked investment products of your choice. Here’s why a ULIP scheme is a good investment during COVID-19.
1. Life coverage
One of the core benefits of ULIPs is that a part of your insurance premiums for ULIPs is invested towards giving you a life cover. In case of your death, prior to the maturity of the policy, the nominee appointed by you will receive the Death benefit. This is typically 105% of the annual premium amount paid by you. In a time where public health is threatened, this serves as the near-perfect way to aid your loved ones when you might not be around. Life insurance also offers COVID-19 insurance now as mandated by the IRDAI.
2. Systematic Investment Opportunity
Another one of the benefits of ULIPs is that they also make for great wealth creation tools. Many are focusing on saving during the COVID-19 pandemic so they can have enough funds to last them through the pandemic. While saving is essential, so is growing your wealth. Ultimately, beating inflation costs cannot be done only through funds saved by you. You need to leverage the power of market volatility as well. ULIPs give you this opportunity by investing in market-linked funds to your choosing. You have the option to switch funds if your ULIP investments are underperforming or you wish to reallocate your portfolio.
3. Tax Benefits
The third benefit of ULIPs is that they can reduce your income tax burden. Reducing your tax burden is also a way to weather the pandemic without dipping too much into your finances. ULIPs are tax-exempt for 1.5 lakhs worth of premiums paid towards your ULIP in a year, as per Section 80C of the Income-tax laws. Hence, ULIPs not only save your money and grow your wealth but do so without the dent of taxation each year. Parking your funds in tools that reduce your tax burden is a wise strategy to save on tax in the long run, whether or not there is a pandemic.
4. They can serve as a retirement option
One of the overlooked benefits of ULIPs is that they are highly customizable to individual needs. Not only can they serve as life insurance, but help you generate retirement income as well. If you survive the tenure of your policy, ULIPs pay out your total funds’ value to you. This can serve as a retirement income, specifically for those who invest in equity funds that generate a lot of wealth across the years. In fact, HDFC Life Click 2 Wealth offers a tax-free*retirement income option in its ‘golden years’ option. You get to create your legacy while getting life cover till 99 years of age.
5. Customisable and Flexible Investments
You have a lot of room to play with your market-linked investments for ULIPs. You can customize your financial portfolio to invest in debt, equity, or hybrid funds in the ratio that is most beneficial to you. If you change your decisions at any point during your policy, you can change your mutual funds' allocation. With HDFC LifeClick 2 Wealth, you get unlimited opportunities completely free of cost to switch funds to your liking. This customization and flexibility afforded to you as an investor can help you beat market volatility and generate long term returns.
Given these benefits, it’s clear that ULIPs are good investments to redirect your funds to during and in the aftermath of this crisis. One of the best policies on the market is HDFC Life’s Click 2 Wealth. This ULIP by HDFC Life gives you market linked benefits along with insurance coverage as three different options — a single person life cover, premium waiver option, and golden years retirement planning option. In addition to these choices, you also get the option to Systematically Transfer your funds to take advantage of Rupee Cost Averaging and grow your wealth.
*The above-mentioned tax rates and tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities
The Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender/withdraw the monies invested in Linked Insurance Products completely or partially till the end of fifth year.
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