Let’s say you are 23 and starting your professional career. Your father tells you to buy a ULIP policy saying that it’s life insurance cover plus investment with significant returns over the long-term. If you thought you could always do it later, that’s unfortunate because there’s no time that is better to invest then right now, especially when you are young. ULIP benefits will prove your decision correct.
What is a ULIP?
Unit-Linked Insurance Plans (ULIPs) combine life cover as well as an investment corpus. One part of the premiums you pay goes towards your insurance cover; the rest goes into an investment pool comprising other ULIP investors like you. This investment corpus is then invested as per the ULIP’s prospectus.
ULIPs invest their funds in financial instruments such as equities and bonds. Depending on your risk appetite, you can decide the kind of ULIP you want to buy. Either way there are significant benefits.
What are the ULIP Benefits?
Size of Corpus
This is pretty straightforward. You start off with ULIPs early, and by the time you are thinking of retiring, your corpus, i.e., the total sum of all the money you have invested and the returns from them, will be significant. This allows you to think confidently about a retired future, without worrying about financing it. Most insurers who provide ULIP products also provide a ULIP returns calculator, which takes into account every aspect of your investment in the product – from the amount you want to invest to how you can meet your financial goals.
ULIPs are beneficial when tax season comes. However, this tax code might change over time. For instance, Budget 2021 has changed the ULIP’s tax exemption status. ULIPs with annual premiums up to ₹250,000 have no change in their tax exemption status (i.e., zero). This cap is effective starting February 1, 2021.
ULIP plans with annual premiums over ₹250,000 will have their returns taxed at 10%, above an annual exemption of ₹100,000.
Starting off in ULIPs at a young age becomes habit-forming. With minimal discomfort, you can start off on building a sizable investment corpus.
ULIPs allow for partial withdrawals. These might come in handy in either paying for someone’s tuition fees, setting down the deposit for a house, or medical emergencies. The point is, it will only be so if you start early. Your kid’s tuition fees will come in when you are probably in your late 30s. If you start in your early twenties, that is a solid 15 years of corpus-building, which means a sizable partial withdrawal.
ULIPs offer life cover – a necessary backup plan for your near and dear ones if you were to pass away. Not only that, it allows the transfer of the ULIP corpus to the assigned family member as well. Your good early habit could have good consequences even if you are gone.
Adjusting Fund Preferences
Another great ULIP feature is that investors can continually adjust how their premiums are distributed, i.e., fund preferences, throughout the ULIP’s duration. When you are in your twenties with a higher appetite for risk, you might want a 70-30 split among equity and bonds. In your thirties, this might come down to 60-40, and then down to 50-50, and so on. You might also look to diversify as per your investment goals and horizon.
ULIPs have been a versatile tool for Indian citizens to ensure investment growth and peace of mind. Make it yours too, especially if you can start early in life. The early bird advantage with ULIPs is significant. It can be the difference between a rewarding post-work life and counting pennies at a time when you can least afford it.