ULIPs are investment instruments that combine benefits of both life insurance and investments in money markets. The premium paid for a ULIP is divided into two parts; one part goes towards coverage of risk to life and the other towards investment in money market instruments. ULIPs as an investment category have a lot of inherent benefits. Here, we identify 5 advantages of investing in ULIPs over other investment options.
Choose your investment mix
On the basis of your risk appetite, you have the option to choose the mix of market entities that you invest in. You can opt to invest in debt funds if you are a low risk-taker, balanced funds if you are moderate risk-taker, and equity funds if you are a high-risk taker. You also have the option switching between funds depending on your market outlook. You have the option of referring to fund ratings of independent investment research agencies like Morningstar before deciding on the type of funds and policy to invest in.
ULIPs like Edelweiss Tokio Life Wealth Accumulation (Accelerated Cover) give you the option of switching between funds depending on your market outlook. This flexibility is not available in other investment plans. It gives you the flexibility of choosing and switching between debt and equity funds. During an uncertainty you can invest in debt funds and when the market performs well you can opt for equity funds. Staying invested for a longer duration i.e. 10 years or so may provide you with opportunities to reap big benefits with these small, but significant alterations.
Long term investment
For achieving long-term goals like buying a house, a new car, opening a start-up etc, ULIPs prove to be a good option. With the power of compounding, ULIPs provide a better return over a longer time horizon. In case you exit the policy after 5 years, what you receive in ULIPs will be far greater than what you would get if you would have only saved that amount without investing. Your money will grow faster over a longer time horizon than keeping it deposited in savings accounts or bank fixed deposits.
Not all investment options provide tax benefits. Since ULIP is a life insurance product it provides tax benefits. For premiums paid, you get tax rebates under section 80C and all pay-outs received are exempt under section 10D of the Income Tax Act, 1961. So you not only save money, but also are able to see it grow.
As mentioned above, ULIP as a product is offered by Life insurance companies. ULIPs fulfil your need for both investment and protection. Though the life cover provided by a ULIP may not be as high as that of a term plan, it does provide some amount of life cover.
ULIPs can be an ideal investment option for your long-term financial goals. It is recommended that you check the performance of individual funds while investing in ULIPs.