The Covid-19 pandemic has made people aware of the importance of having life insurance. Also, as several people exhausted their savings during the pandemic, they searched for investments that offered better returns than traditional ones. The financial uncertainties have made people reflect on their choices and revamp their financial choices. One such financial product that gained popularity during and after the pandemic is the Unit Linked Insurance Plan (ULIP).
A ULIP is a financial instrument that provides life coverage and returns on investments. The premiums you pay are partially used towards life insurance and partially used towards investments. There are several types of ULIPs you can choose from based on your risk appetite and financial goals. When the ULIP matures, you receive a maturity amount that includes your investment and the returns you earned on it. Here is what made ULIP the perfect scheme to invest in during and after COVID-19:
Provides life coverage
ULIP is a type of life insurance, and hence, the core benefit is providing you with life coverage. It ensures that during the tenure of the policy, if the policyholder loses their life, the insurance aspect will financially protect their loved ones. The nominee that you have mentioned in the policy will receive the sum assured in case of your sudden demise. Also, there are additional riders you can choose to get financial coverage for specific conditions, like, the critical illness rider. Ensure that your ULIP plan offers enough coverage to suffice your dependents andrepay any liabilities that you may have.
Helps achieve long-term goals
ULIP accelerates wealth creation by offering huge returns in the long haul. Based on the goal you have, you can choose from the types of ULIP and invest accordingly. Be it having a retirement corpus or saving up for education, you can focus on a goal and make investments accordingly. Equity-based ULIP funds easily offer higher returns than traditional investments. Over the years, with the power of compounding, one can generate sufficient funds not only from the amount you have invested but also on the returns that you earned over the years.
ULIP benefits as an investment, depending upon the types of investment you choose. If you can take risks, you can invest in equity funds. They offer huge returns for the high risks involved. If you are looking for a safe investment, there are debt funds available, that, for low risk, comparatively offer low returns. Here, the money is invested in corporate and government bonds. You can also choose investments that are a mixture of both; they’re known as balanced funds. They generate moderate returns as the amount is partly invested in equity funds and partly in debt funds. One of the unique features ofa ULIP is that you can switch your fund allocation anytime you want and make the most of the market fluctuations. For example, if you had invested in the equity funds of ULIP before COVID-19, you could switch to debt funds during the pandemic, making it a safer option. Based on your risk appetite and market conditions, you can switch the allocation and maximize the potential of your returns.
Useful for emergencies
The COVID-19 pandemic made people take seriously the uncertainties of life and the existence of an emergency fund to rely on during those times. ULIPs come with a lock-in period of 5 years. After that lock-in period, you can claim free partial withdrawals anytime you want. The availability of partial withdrawals with no charges is one of the ULIP benefits that ensure you have funds to access in times of emergencies.
A ULIP plan is designed in such a manner that the policyholder gets tax benefits on multiple levels of the plan. Section 80C of the Income Tax Act states that the premiums that you pay for your ULIP are exempt from taxes. The amount that you receive when your ULIP matures is also exempt from taxes. The sum assured that your nominee receives in the event of your demise is exempt from taxes as well. These are according to the current tax norms, and it is important to check the updates from time to time.