When looking for a reliable, guaranteed growth investment option, look no further than ULIPs – they also offer life coverage.
The life insurance sector got a major boost after demonetisation in November 2016, when interest rates dropped. Investors started parking their surplus funds in insurance products like ULIP policies (Unit Linked Insurance Plans) – these offer good market returns with adequate life coverage over the vested period.
If you haven’t yet purchased a ULIP, consider the following reasons to do so:
- You get life coverage with market linked returns. Traditional life insurance options only provide a maturity bonus on completion of the plan term. However, the ULIP policy offers affordable life coverage along with market-linked returns on your investment. The premiums you pay are split into two components: one, the premium payment itself, and two, towards high grade securities. Thus, if you stay invested in the policy for about 10 years, you can get good ULIP returns on the premiums you pay every year with the risk evened out.
- It helps you achieve periodic milestones. When you factor in ULIP benefits, you must consider that it is an excellent instrument for achieving short term goals as well. This is a useful feature for those who may have goals like making a down payment on a new house or car after five years, paying your child’s semester fees after eight years, and so on. The ULIP policy has a lock-in period of 5 years, after which it allows partial withdrawals up to 20% of the fund value. The withdrawals are tax free and allow for periodic wish fulfilment.
- The premiums are tax deductible. As mentioned earlier, a key ULIP benefit is that the premiums paid are invested in equities and debt securities to ensure ULIP returns. Subject to conditions, the premiums are tax deductible up to Rs 1,50,000 per year under Sec 80C of the Income Tax Act, 1961. However, the entire premium is deductible only if it is less than 10% of the sum assured of the policy.
- You can buy a ULIP plan with a top up feature. The best way to park excess funds in a suitable investment, is to top the premiums on your ULIP policy. The top-ups are normally eligible for tax deduction, and additional exemption under Sec 10 (10D) of the IT Act. This is a good way to park excess funds instead of keeping them idle in your savings account. The increased investment also results in higher ULIP returns on maturity.
- You can easily buy ULIP plans online. The best insurance providers today, like SBI Life Insurance, have a simple online purchase process. You can buy the excellent SBI eWealth Insurance plan online via a simple 3-step process, choosing between two plan options at premiums starting at just Rs 1,000 per month. The SBI eWealth Insurance ULIP policy allows partial withdrawals after 5 years of the lock-in period are over.