There is a saying, when the going gets tough, the tough get going. Well, the scenario we are currently witnessing is something that no one has witnessed before. These are unprecedented and unknown times which give rise to multiple uncertainties. Hence, it becomes imperative that we sit down and assess the situation to ensure that we can take control of whatever we can. For example, taking control of our savings to ensure that in spite of job cuts and inflation, we grow our wealth and reduce dependence on living pay cheque to pay cheque.
So keeping that in mind, we must look at investing our money smartly. One such smart option is unit linked insurance plan – a market linked life insurance plan. Let us find out how does this work and what is the best time to invest in such ULIP plans.
How investing market-led investment options is good for better financial planning?
One of the best things about a ULIP plan is that it has three major benefits. Some might say that this product is one that has now lived out its life, however, it has a unique proposition that not a lot of financial instruments have. It helps achieve financial goals, provides insurance and reduces taxable income.
Financial Goal Setting
ULIP Plans is a life insurance product that provide the ability to increase wealth through investment in debt and equity funds. This, however, is most helpful when you look at long-term financial goals. Investors can choose from either equity funds or debt funds or can opt for a balance between the two. Such a decision needs to be taken based on the risk taking ability of the investor. These unit linked insurance plans have a compulsory lock-in period of 5 years and come with an insurance plan as well. This is certainly a long-term investments instrument which benefits from the power of compounding which can help generate a significant return on investment and security in times of sudden emergencies.
Acts as an Insurance Plan
Another very strong reason why you should opt to invest your money in a ULIP Plan is that other than being an investment instrument, it also provides life insurance cover. By investing in a unit linked insurance plan you stand a chance to protect your family from unforeseeable emergencies and uncertain events. Your family will be sufficiently taken care of in case of the untimely death of the insured individual who might be the highest bread winner of the family.
Investing in unit linked insurance plans has yet another benefit. Based on the Income Tax Act, the premiums paid for the ULIP plan get the investor a tax deduction under Section 80C. The maximum allowable deduction is INR 1,50,000. Also, when the ULIP Plan matures, the money that you get is exempted from income tax under Section 10(10D). So that’s a tremendous win-win situation for investors.
How do ULIP works?
So, here is how a unit linked insurance plan works.
When you individual invests in a ULIP Plan, you need to pay a fixed premium for the amount of cover you choose. Some amount that you pay as premium is used as insurance premium while the rest is invested in an equity fund or a debt fund. If by chance you would like to switch your investment strategy, ULIPs give you the chance to do that as well. It is important to remember that ULIPs come with a mandatory IRDAI guideline of a 5-year lock-in period. This gives it enough time to perform well and generate decent returns for the investors.
So, overall, a unit linked insurance plan is a strong and smart investment instrument that could help settle your long-term financial worries. Hence, when you are asked when is it the right time to invest in ULIPs, always is the right answer!