There are several financial goals that one dreams of fulfilling. However, specific financial goals require a considerable amount. Certain goals help to define your future, while others could safeguard your family financially in your absence. If you do not have the finances to fulfil them, don’t worry; several investment policies now allow you to plan a happy future and seamlessly fulfil your long-term financial goals.
The higher-education aspirations of your child represent a crucial objective that can pave the way for a more promising future. While you are here to support your family and these aspirations, have you considered how they would be safeguarded in your absence? Unit Linked Insurance Plans can provide a solution.
In this post, you can learn how ULIP investment plans can help you plan a long-term investment goal.
What is ULIP?
The policyholder in a ULIP plan assumes all investment risks in the investment portfolio. The entire name of this multifaceted life insurance plan is Unit Linked Insurance Plan or ULIP. A ULIP plan combines investing and life insurance. Regular premium payments are necessary for ULIPs; some money is used to fund investments, and some are used to offer life insurance coverage.
Like mutual funds, the investment part is combined with the assets received from other policyholders and invested in various debt and equity instruments. Investing in ULIP increases your money while maintaining emergency financial security. Let’s learn more about investing in and what ULIP plans are.
How Do ULIPs Work?
The types of fund alternatives chosen under each specific ULIP plan determine the returns on investments. Policyholders may choose to invest in debt, balanced, or equity funds according to their age-related changes in risk tolerance.
Most ULIPs include a fund-switching function that lets policyholders move between fund selections to adapt to shifting needs and maximise investment results. Since market-related investments are how ULIPs build a corpus, investing a reasonable amount of time and connecting the policy to long-term financial goals can yield the best results.
How ULIPs Can Boost Your Financial Goals?
How can ULIP policies help you fulfil your long-term financial goals? The reasons that make it a popular option are as follows:
Power of Compounding
Compounding is sometimes referred to as “the eighth wonder.” Any investment has hidden power that makes it worth waiting for. The capacity of an asset to generate money that the fund then invests to generate more income is known as compounding. By doing this, the money you invest stays precisely the same while you continue to receive interest and other income streams. If all goes according to plan, your fund should generate significant returns over several years.
Compounding is a benefit of unit-linked insurance plans (ULIPs), but they come with a catch. You must pledge to make monthly payments and allocate your funds to specific goals. Additionally, the Sum Assured provides financial protection for your loved ones in the unfortunate event of your untimely demise. Thus, the secret to taking advantage of compounding is to invest regularly over an extended period of time.
Compared to conventional life insurance plans, ULIPs may yield more significant profits. Your returns are correlated with the success of the market-linked funds, in which a portion of your premium is invested. Although market risk is involved, there is also a chance for substantial long-term growth.
Through prudent fund selection and management tailored to your risk profile and current market circumstances, you may use the potential of stocks and other asset classes to attain superior returns compared to traditional insurance solutions.
ULIP Plans are Structured for Goal-Based Planning
ULIPs are only advantageous if you have an investing horizon of at least ten years due to their simple nature. As a result, those who want to invest and save for their medium- to long-term financial goals may find ULIP plans most appealing. They are excellent retirement planning tools due to their long-term perspective, the requirement for premium payments throughout the lock-in period, and a high degree of flexibility and customisation.
It is a Customisable Plan
Customisability is one of the best things about a unit-linked investment plan. Policyholders can customise their ULIP plans to meet their investing choices, risk tolerance, and financial goals. ULIPs often include a selection of fund alternatives, such as debt, equity, and hybrid funds, so you may pick the combination that best fits your level of risk tolerance.
In addition, you can change the funds in your ULIP to accommodate evolving needs or financial objectives. This flexibility guarantees that throughout your financial journey, your ULIP will continue to be applicable and valuable.
ULIP Tax Benefits
ULIP investments may result in tax savings. Due to ULIP tax benefits, premiums and plan returns are tax-free under Sections 80C and 10 (10D) of the Indian Income Tax Act, 1961. But, as of the Budget 2021 declaration, ULIP maturity gains would be subject to taxes under specific conditions. If the total premium paid over the year exceeds ₹2.5 lakhs, the maturity benefit will be treated as Long-Term Capital Gains (LTCG) and taxed accordingly.
The ULIP insurance is a flexible financial instrument that can meet your financial objectives and aspirations. The aforementioned perks of this plan say it all. However, before choosing the finest ULIP plan for your investment needs, you must carefully consider your financial goals and risk tolerance.