ULIPs: Insurance, retirement corpus, income tax saving, and other benefits of unit-linked plans

Unit-linked Insurance Plans (ULIPs) could be beneficial if you are looking for dual benefits of insurance coverage and investment. ULIPs are lucrative investment options as these policies offer a higher return via equity-linked instruments. Such plans not only provide financial security but also offer the potential to grow your money faster than several other traditional investment options.

What are ULIPs?

ULIPs refer to a category of insurance policies which offer an opportunity to invest in various market-related assets such as equity, debt, and balanced funds to receive long-term benefits. Such policies allow the insured to leverage returns from various asset classes, including the stock market. However, it's essential to understand that ULIPs come with some amount of risk as the investment is prone to market volatility.  

The ULIP investments are also eligible for tax benefits under sections 10D and 80C of the Income Tax Act, 1961.

Benefits of ULIPs

Insurance coverage: A part of the premium you pay is directed towards providing life insurance. In addition, if the policyholder dies within the tenure of the plan, their family would be entitled to receive death benefits.

Retirement corpus: ULIP investments are long-term plans and can be ideal to build a significant retirement corpus. One can start investing early and increase premiums over time to gain higher returns from investments. In addition, they can choose to shift between funds to mitigate risks and maintain returns. On maturity, the accumulated funds from various assets would help to build a good retirement corpus.

Tax Exemptions: Buying an ULIP will assist you to save taxes while creating wealth and planning for uncertainties. The premium paid towards ULIPs is eligible for tax deduction of up to Rs 1.5 lakh under the Section 80C of the Income Tax Act, 1961. Furthermore, the amount received on maturity of the ULIP policy is exempted from tax implications under the Section 10(10D) of the I-T Act.

Liquidity: The policyholder can choose to withdraw funds linked to their ULIP plan after the lock-in period is over. This feature can be helpful when the insured requires access to funds during an emergency. However, the withdrawals shouldn't exceed 20 per cent of the ULIP plan's fund value.

High returns: ULIPs generally offer potentially higher returns as it allows one to invest in a variety of investment options. However, the returns depend on the fund chosen by the policyholder, which means that they can earn higher profits by investing in the capital market though there could be high risk factors.