In today’s fast paced world, no product or service serves only a single purpose. There was a time when investors used to treat insurance products and investment products differently. However, the Unit Linked Insurance Plan (ULIP) changed that. A ULIP is a product that provides its buyer with the dual benefit of insurance and investment. ULIP is an insurance product that combines insurance protection and investment by enabling the policy holder to earn market linked returns by investing a portion of the premium money in the equity and debt markets. Returns generated from ULIPs are linked to market performance. The premium is bifurcated into two components, one is for insurance cover and other goes into the investment funds. Each fund has its own risk and return profile based on the asset class that the fund has invested in. The policy holder is also offered the option of choosing the fund mix based on his desired asset allocation. Investors are also given an option to switch between underlying funds.
Insurance: - This product provides insurance cover according to terms and conditions laid out in the offer document.
Financial Goals: - To achieve long term goals like buying a house, retirement planning etc., investors can choose to invest in ULIPs. Since ULIPs invest a certain portion of the money in equity and debt funds, investors can reap the benefits of long-term equity returns through investment in equity funds, as well as, secure the downside of their investments through an exposure to debt funds.
Tax Benefits: - The Indian government provides a tax exemption for investment in particular products under different sections of the Income Tax Act. Investment in ULIPs is eligible for tax deduction under section 80(C). However, the limit for such deduction is up to Rs. 1,50,000. Also, the amount received on maturity is tax exempted under section 10(D).
Flexibility of switching: - Investors can switch between debt and equity without any cost. This option is very helpful when market sentiments and directions are changing.
Unit Linked insurance plans are attracting more attention after a positive change in regulations and guidelines. ULIP has its own advantages when it comes to switching between plans and fees. Managing investment products and insurance products separately could be a headache for some retail investors. Such investors can choose to opt for ULIPs which acts as a one-stop investment cum insurance solution. However, it is advisable to consult a financial planner to understand your own unique risk/return requirements before making any investment decisions.
