Market-Linked Plans: The Smart Way to Combine Insurance with Investment
If you are looking for a life cover that protects the financial interests of your loved ones in your absence, you can invest in a life insurance plan. If you want to prepare for future goals, you can invest your money in the market through different types of funds. And if you want to simplify these two actions and combine them into one, you can invest in a Unit-Linked Insurance Plan (ULIP).
ULIPs are a smart way to combine insurance with investment. Let’s explore how they work and their benefits for a well-rounded investment strategy.
What are ULIPs?
ULIPs combine the features of insurance and investment in a single product. This essentially means that while these plans provide you with a guaranteed life cover, they also allow you to invest your money in market-linked plans. ULIPs offer various types of market-linked funds, such as equity, debt, and hybrid funds. These funds carry varying risk and return potentials and allow you to tailor your plan to your needs.
How do ULIPs smartly combine insurance and investment?
1. Life cover
First and foremost, ULIPs offer life coverage to the policyholder for the entire policy term. These plans protect the financial interests of your loved ones, such as your spouse, children and other dependents in case of an unfortunate event. Some of the life insurance companies also offer whole life cover option where the policy benefit continues till 99 years of age.
2. Multiple fund options
ULIPs offer multiple types of funds, such as equity, debt, and hybrid funds. You can choose them based on your specific needs and risk tolerance.
You can invest in equity funds if you are seeking aggressive growth and are comfortable taking on some risk. Alternatively, you can explore debt funds if you prefer lower risk and are willing to accept more modest returns.
For a balanced approach, hybrid funds are a good option, as they combine the benefits of both equity and debt, balancing risk and returns.
3. Diverse portfolio strategies
ULIPs provide flexible portfolio strategies tailored to your individual needs. You have the option to either manage your portfolio independently or opt for a professionally managed fund overseen by the insurer.
For new investors with limited investment experience, the insurer-managed option can be a smart choice as it offers expert management. On the other hand, seasoned investors may prefer to have more control and the choice for customisation offered by a self-managed portfolio. This can allow them to make investment decisions based on their knowledge and expertise.
4. Flexible switches
ULIPs allow you to switch between different types of funds based on your changing financial needs and risk appetite. You can invest in a diverse range and shift from one fund to another as market conditions evolve. This allows you to capitalise on emerging opportunities.
Over the long investment term, your financial goals can change, and you may need to switch your investment strategy accordingly. ULIPs offer adaptability that helps you adjust your portfolio according to any shifts in your risk appetite and financial goals over time.
5. Tax benefits
ULIPs also offer significant tax benefits, as they qualify for tax advantages under The Income Tax Act of 1961. Since ULIPs are a type of life insurance product, premiums paid towards these policies are eligible for deductions under Section 80C, which allows you to reduce your taxable income. You can claim a tax deduction on premiums paid up to ₹ 1.5 lakh per annum.
Additionally, the maturity benefits received under a ULIP are exempt from taxation subject to conditions under Section 10(10D). This dual tax benefits of ULIP makes them an attractive investment option.
To sum it up
ULIPs are a brilliant addition to any financial strategy as they combine both insurance and investment. They offer a comprehensive solution that helps you address all your financial needs and goals. With the flexibility to adjust your investment strategy over time, ULIPs can be tailored to suit your individual preferences and changing circumstances. This makes them a versatile choice for long-term financial planning.
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