Is It Worth Buying ULIP Plans for 10 years?

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Lucille Barrett
Lucille Barrett
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These days, several financial instruments meet the needs of every investor. The variety of choices allows investors to meet their varying requirements, but it can also baffle them to choose from many options. Individuals seek investments that offer good returns but also want to keep their families secure. The needs of individuals have led to an increase in the popularity of Unit Linked Insurance Plans (ULIPs). It is a unique single plan that offers life insurance and investment opportunities.

With a ULIP, you can invest your chosen funds and get a life insurance policy. It is designed for the long haul, and to gain maximum ULIP benefits, it is important to hold it for a long time. If you are planning to purchase a ULIP and wondering if it is worth investing in for 10 years or more, read further.

ULIPs as a Financial Planning Instrument - Investment Blog


Enables wealth creation

Since ULIPs are designed for the long haul to get benefits from them as investments, you must stay invested for a minimum of 10 years or more. The returns that you gain from it easily beat the returns from any traditional investments over the years. Also, a part of every recurring premium you pay towards ULIP is invested in funds of your choice. Regular investment leads to compounding. With compounding, you earn returns not only on the principal invested but also on the returns you have made in previous years. The longer you hold, the more your returns compound. ULIP returns in 10 years or more are higher since the longer you own, the more your investment compounds, and the more returns you earn.

Several fund options

Your ULIP benefits are directly subjective to the funds that you have invested. There are several fund options that insurance companies offer. The variety of options can be broadly divided into three categories based on your risk appetite, debt funds, equity funds, and balanced funds. Equity funds have a high risk but usually offer the highest returns among the three. Debt funds are low-risk and provide lower returns than equity. There are balanced funds for investors who want the best of both worlds. Here, the money is partly invested in debt and partly in equity. They have moderate risks involved and provide reasonable returns.

Switch fund allocation

Flexibility is a significant factor when investing for ten years or more. If the investment is rigid and you are unhappy with it, you either have to dissolve it before time or pay charges if they had a lock-in period. Either way, it leads to the waste of an investment opportunity. One of the ULIP benefits that attract several investors is its flexibility. You can switch your fund allocation anytime when you buy a ULIP until it matures. You can move your allowance from debt to equity funds and vice versa anytime during the plan. Since ULIPs are directly linked with the market, switching funds anytime allows you to mitigate unnecessary risks and maximize profits.

Get free partial withdrawals.

ULIPs allow free partial withdrawals after the lock-in period, which is of five years. When holding an investment for 10 years or more, you want the flexibility of withdrawing funds anytime you want. Since in case of emergencies or scenarios where you urgently require money, you always know you can avail of free partial withdrawals from your ULIP. Your ULIP returns in 10 years or more continue to compound and grow even when you partially withdraw from it. The fund continues as usual without you having to pay any charges.

Several tax benefits

ULIP offers several tax benefits because of its unique structure. When investing for the long haul, one major factor to consider is the tax implication of the instrument. You are required to pay premiums when you buy ULIP. These premiums are subjected to deductions under Section 80C of the Income Tax Act. The death benefit that the nominee receives is also exempt from taxes under Section 10 (10D) of the Income Tax Act. The fund value you receive when your ULIP matures is also subject to the exemption, provided certain conditions are met.

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