Unit linked insurance plans (ULIPs) are a category of goal-based financial solutions that combine the safety of life insurance protection along with long term wealth creation opportunities. In ULIPs, a part of the premium goes towards providing you life cover &the remaining portion is invested in fund(s) which in turn is invested in stocks or bonds. The value of investments alters with the performance of the underlying fund opted by you.
Simply put, ULIPs are structured in such a way that the life protection element and the savings element are distinguishable, and hence can be managed according to your specific needs.
Why do I need ULIPs?
- Freedom to choose your life insurance cover: In a unit linked policy, you can choose the extent of life insurance cover that you can enjoy. In most ULIPs, the minimum life insurance cover that you get is 10 times the annual premium. The upper limit can be as much as 100 times of your annual premium or even higher, depending on the policies of the insurance companies.
- Freedom to choose your investment type: Depending on your investment preference, unit linked insurance plans allow you to invest in various asset classes like equity, debt or money market. Whats more, you can switch between these asset classes seamlessly with almost no charges.
- Flexibility of additional investment: In ULIPs, you can anytime invest an additional amount, called top-up, at a very nominal charge to enjoy the benefit of greater savings.
- Liquidity: ULIPs have a partial withdrawal option, so that you can withdraw your money in case of emergencies. These partial withdrawals are usually free of cost.
- Goal based planning: ULIPs are structured to help you secure your key goals such as Retirement planning or saving for your childs education. So, apart from the life insurance benefit and the advantage of investments, ULIPs also give you the added benefit of knowing that your premium is working towards securing your future goals.
- Tax benefits: Apart from protection and savings, unit linked plans also offer tax benefits. Not only you can claim the insurance premium paid towards reduction from your taxable income, the maturity benefits are also completely tax free, as per prevailing tax laws.