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ULIPs – A Thoughtful Gift for Wealth Generation & Tax Saving

When you are looking for life insurance, a traditional plan may not meet all your needs. Most young and middle-aged people hesitate to block huge chunks of money in life insurance, since it is equally important for them to invest in their future goals, be it their retirement, their children’s education, or simply to travel. For such individuals, a Unit Linked Insurance Plan (ULIP) is an ideal choice. What is a ULIP policy? A ULIP is a two-in-one instrument that provides insurance and returns on investment. It gives you the best of both financial instruments.

When you buy a ULIP, the premium you pay is partly used towards providing you with a life cover, while the other half is used towards investments. The premiums are pre-determined, and you can decide in which investments your money goes. There are different funds available, and you can choose amongst them depending on your risk-taking ability. These funds fluctuate according to the market, as ULIPs are directly subjected to market risks. When you are thinking about long-term wealth generation, a ULIP is a great option as it can help you save and even multiply your money in the long run. Here is why ULIP helps in wealth creation while saving your taxes.

ULIPs are versatile

ULIPs are quite flexible as you can switch amongst different funds to get maximum benefits. It is the only financial instrument that offers this amount of flexibility. Most ULIPs allow you to switch between different funds any number of times. There are three types of ULIPs available based on your risk appetite – debt, equity, and balanced funds. Depending upon your needs, you can switch amongst them. At a certain age of your life, you could take more risks compared to other times. Also, you can check the performance of the assets you have invested in and change or continue accordingly. In the long run, you can easily switch amongst different funds and make the most of the market fluctuation.

ULIPs inculcate the habit of saving

When you buy a ULIP, you are building your financial portfolio along with getting a life cover. As a part of your portfolio, ULIP is an investment. It ensures that you save some money in every recurring month or year. When one is living a paycheck-to-paycheck life, it’s difficult to save for the long term. A ULIP ensures you save periodically from time to time. After your ULIP matures, these funds only will be more useful for your long-term goals. Also, most ULIPs have a lock-in period of 5 years, so you cannot withdraw any funds before the lock-in period.

ULIPs offer several tax benefits

ULIP tax benefits are one of the major reasons behind its popularity. The premiums that you pay for your ULIP are exempt from taxes under section 80C of the Income Tax Act. Hence, the money that you are basically investing is also exempt from taxes. Also, the sum that you receive after your policy matures is exempt from taxes. Along with that, the death benefit that your nominee receives in case of your demise is also exempt from taxes. When you buy a ULIP, you basically save taxes in every stage of the plan and this makes it a sharp choice for tax-saving.

ULIPs give high returns

When you buy a ULIP, you can diversify your investments anytime you want. When people buy a ULIP that is equity-based, they usually get high risks for high returns as equity funds directly invest in the equity market. A debt fund is a safe type of investment to opt for and has lower returns compared to equity. A debt fundsafely invests your money in government and corporate bonds. If you want a balance and moderate risk, simply opt for a balanced fund, which is a blend of both equity and debt. In the long run, equity-based funds offer exponential returns when compared to conventional financial instruments like Fixed Deposits (FDs). These high returns offer great returns in the long run and can significantly help in wealth creation.

ULIP tax benefits, along with returns, make it an ideal financial choice. It is an instrument that will save taxes and generate a huge amount of wealth for the future.

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