A sound financial plan needs all the right kinds of investment and insurance options. That way, you are able to financially secure your loved ones and build your wealth over time. But what if we tell you that there is a policy that allows you to do both? Yes, Unit Linked Insurance Plans (ULIPs) offer dual benefits of life insurance cover and wealth creation.
Ideally, ULIPs is an insurance instrument and has been popular among young investors lately. We know that ULIPs are a compelling long-term investment product. But are they good for short term gains? Let us find out.
ULIPs Short Term Gains
ULIPs have a five-year lock-in period. During this time, you are not allowed to make any withdrawals from the policy. You can discontinue the plan but will receive the final payout only after the completion of the lock-in period.
Moreover, if you decide to surrender/discontinue the ULIP policy, you will have to pay certain charges. This makes it highly detrimental if you were planning to save money for accomplishing any short-term goals. Hence, it is advisable to keep the policy running at least until the end of the lock-in period.
For many people, short-term goals are usually near-future goals—something you plan to accomplish in 5-7 years. Thus, ULIPs tend to be the right investment choice that will help you achieve these near-future goals. Also, you get the liberty to continue investing in the policy after five years so that you can invest in achieving your long-term goals.
ULIPs Long Term Gains
As we all know, ULIPs are goal-based investment plans. So, choosing to invest in it to achieve your long-term financial goals is a sound financial decision. You can save for long-term goals such as retirement, buying a new car/house, child’s education, child’s marriage, etc.
Apart from this, investing in ULIPs have many other benefits –
- You can avail tax benefits under ULIPs. The premiums paid towards the policy can be claimed for tax deductions under Section 80C of the Income Tax Act. Moreover, the death and maturity benefits received are tax-free under Section 10(10D) of the Income Tax Act, 1961.
- A part of the premiums paid is used for life insurance cover; whereas the remaining amount is used for investing in funds of your choice.
- In case you are not satisfied with the fund performance, you can make some changes to your portfolio as and when needed with the help of the fund switching facility.
- They offer the flexibility of investing in ULIP funds based on your risk appetite. Those with a low-risk appetite can invest in debt funds; whereas people with a high-risk appetite can invest in equity-oriented funds.
Is it best for me to invest in ULIPs?
Before you decide to invest in ULIPs, ask yourself these questions –
- What are my short-term financial goals?
- What are my long-term financial goals?
- What is my risk appetite?
After this, you need to evaluate your current financial situation, monthly expenses, and financial objectives. All of this will help you ensure that you are choosing the right investment instrument. Also, if you proceed to invest in ULIPs, make sure that you are consistent in paying the premiums.
We understand that a pandemic-like situation can put you through a financial turmoil. But staying consistent in paying your ULIP premiums and other insurance premiums will ensure that you and your loved ones are financially secure. If you are facing a financial crunch, you can adhere to a strict budget, cut down on your expenses, and spend only on necessary items. This will ensure that you have sufficient funds to invest in your future.