What is ULIP?
Whenever we think about a Unit-Linked insurance plan (ULIP), the first impression that comes to our mind is that it is a market -linked product and the returns are linked to the performance of the underlying investments. However, many people are not aware that a unit-linked insurance plan is more than just an investment vehicle. ULIP insurance helps investors meet their various life needs at different stages due to its dual benefits.
These needs can be having a life insurance cover with savings for wealth creation, meeting the expenses of your children’s education, their marriage as well as life after retirement. You need to ensure that you plan for all these needs even though it might not be immediately perceptible or foreseeable. Therefore, to fulfil these needs, you need a dual policy like Unit-Linked Insurance Plans (ULIP plans).
Below are five financial needs fulfilled by ULIPs:
1. Choice of strategy
Along with offering life insurance, a ULIP policy also provides exposure to the investment markets. The policyholder can choose to opt for a passive or an active investment strategy. It all depends on the level of financial sophistication and the know-how of the individual.
If there is a case of passive strategy, the insurance company decides on the allocation or switching of the money into different asset classes. The individual chooses the appropriate funds for investing in various asset classes in case of an active strategy. An investor can switch between various fund options, depending on his/her risk appetite and the evolving needs over time.
2. Offering flexibility
If you are bundling investment and insurance under one single policy, ULIP offers benefits of both at a lower cost than them separately.
Someone who has bought a regular premium ULIP can opt for redirecting the future premiums. A ULIP policyholder can switch from one asset class to another or modify the proportion of invested funds in equity, debt and money market instruments. It allows the investor to enjoy the benefits from market upturns and escape market downturns.
For example, a person invests 50 per cent in equity and 50 per cent in debts. If the customer expects and believes that the equity markets will do well in the future, he/she can choose the option of an equity proportion, i.e. invest 75 percent in equity funds instead of the existing 50 percent and invest 25 per cent in debt funds.
3. Partial withdrawals
Individuals who need cash to fulfil some of their unplanned needs can take the help of partial withdrawals from their invested corpus in a ULIP. The option of liquidity through partial withdrawals will allow the individual to withdraw part of their fund, whenever the need arises while continuing with the cover. It provides a good amount of flexibility that will enable a customer to meet his immediate needs.
4. Equity edge
People believe that equity investments provide nice returns if you hold them for the long term. ULIPs also provides a chance for investing in equity instruments. These products have a lock-in period of five years as well that act as compulsory savings during the early years. If you save compulsorily without withdrawal in the short term, it can provide a boost to returns in the long run.
5. Retirement corpus
ULIPs is an excellent instrument for retirement savings. ULIP offers higher returns on your investment. Thus, by the time you retire, you can have a big corpus. One can achieve life goals like travelling, pursuing exciting hobbies post retirement. Through ULIPs, you can accumulate a sizeable corpus by gaining exposure to different asset classes.