As the world emerges from the long shadow of the Covid pandemic, people everywhere have realised that life insurance and a secure financial future are key aspects to leading a stress-free life. Increasingly, many are moving towards investments that offer sound returns in the long run and also provide the assurance of life cover. This is where Unit Linked Insurance Plans, or ULIPs as they are popularly known, are steadily emerging as a product of choice for many as they combine the benefits of both.

ULIPs, simply put, are products that combine dual benefits of life insurance cover and wealth creation. Part of the premium paid under ULIPs is used for providing life insurance cover, and the rest is invested in funds (equity, debt or a combination of both) as selected by the policyholder.

One can invest in ULIPs for long-term financial goals such as retirement, children's education and their marriage, allocating funds in plans that suit their risk appetite. On the other hand, the ULIPs serve as financial relief for dependents in case of the policyholder's death during the term of the policy. In addition, ULIPs also act as a tax saving instrument.

Life cover, wealth creation and tax saving are the three cornerstones of ULIPs, which make them an attractive proposition to young and old alike.

How do ULIPs work

The returns on ULIPs depend on the kind of fund options selected under the particular ULIP plan. Policyholders have the option of selecting equity, balanced or debt funds to invest in, depending on their risk appetite, which can change with age. Most ULIPs have a fund switching feature, which allows the policyholder to switch between fund options, to keep up with the changing requirements/ optimising the returns from their investments.

Since ULIPs create corpus through market-related investments, one can gain optimum returns by linking the ULIP policy to long term financial goals and staying invested for a reasonably long period.

The upside and downside of ULIPs

ULIPs are designed to give sufficient life cover to the policyholder, along with added benefits of investments in market-linked funds having a high return potential, as well as tax benefits, ULIPs are an exciting investment option for all age groups. It is however a good idea to look at the pros and cons of ULIPs before taking the plunge

Pros:

For the Long-Term: Being market related investments, ULIPs have the potential to offer a good corpus over a long-term.

Partial Withdrawals: ULIPs provide liquidity through partial withdrawals from sixth year onwards.


Flexibility: Policyholders can switch between funds, depending on their financial requirements and investment goals.

1. A) The premium paid towards the ULIP is allowed as a deduction up to ₹ 1.5 lakh per year subject to condition prescribed under Section 80C of the Income Tax Act, 1961.
2. B) Proceeds received from Maturity Death payout are tax-free subject to the conditions specified therein under Section 10 (10D) of the Income tax Act 1961.

Cons:

How to choose the best ULIP

There are several ULIPs in the market. The best one for you will be determined by these factors -

*Investment goals - Choose a ULIP that is compatible with your investment horizon and long term financial objectives

*Insurance goals - Select a ULIP that takes into consideration your family's current and future needs, and provides adequate insurance coverage.


*Flexibility - Choose a plan based on the investment period you wish to invest for. ULIPs are meant for long term investment, and come with a 5-year lock-in period, so flexibility in policy tenure is important. Investors can pick from equity, balanced or debt funds to depend on their risk appetite, so flexibility in investment options is also crucial.

*Performance - Looking at a ULIP's performance for the last 3 to 4 years is a good reckoner of its performance and gives a reasonable estimate of the plan's expected returns.

ULIP - a sound investment platform The best way to view a ULIP plan is to consider it as an insurance policy which offers wealth creation over a long-term. ULIPs offer a range of flexibilities in terms of funds, policy term, premium payment term, thus catering to a range of customer requirements.

To sum up, ULIPs are a smart investment option for the long run!