ULIP: A Smart Investment or a Necessary Life Insurance?

ULIPs combine the benefits of life insurance and investment. For someone new, what should be the right reason to buy ULIP- insurance or earning returns from the investment? Read this post to find out. 

Want to improve your finances? Just like the majority of the people, you will look for expert suggestions on the internet. Two of the most common tips you will come across is to purchase life insurance and start investing. Both have their unique benefits, and both offer financial security to the family of the policyholder. 

Unit Linked Insurance Plans, popularly known as ULIPs, combine insurance with investment. Just like standard life insurance, you pay premiums for ULIPs. But the premium amount gets divided into insurance coverage and the fund/s selected by the policyholder. This multifunctional nature of ULIPs often confuses a lot of people wanting to purchase insurance or looking to start investing. 

What should be the primary goal behind purchasing ULIP- insurance coverage or investment? Let us have a look-

ULIP for Insurance

The insurance component of ULIPs is similar to term insurance. The policy has a fixed maturity period, which could range from 5-20 years. In most cases, life insurance expires once the policy matures. However, some plans continue offering insurance coverage even after maturity. Some of the plans also come with several add-ons or rider options. 

With regards to the coverage, it is generally around ten times the total premium that you pay in a year. In case of your death within the policy period, your nominee will receive the coverage amount. You will receive the maturity benefit if you survive the policy duration. Moreover, ULIPs are also eligible for tax deduction under Section 80C, but you need to remain invested for at least five years to avail this deduction.

ULIP for Investment

With ULIP, you get to select from equity, debt, and a combination of the two through balanced funds. The funds are managed by professional fund managers to help investors earn higher returns. As per your risk appetite and financial objective, you can select a fund of your choice. The investment component of the premium you pay will be used for purchasing units of this fund. 

Moreover, you also have the option to switch between funds. For instance, if you invest in the equity fund and have reasons to believe that the market is costly and might fall, you can switch to a balanced or debt fund. But note that there are only a limited number of free switches in a year. You will be required to pay a switching fee beyond this limit. 

ULIP: The Best of Both Worlds

As you can see, ULIP insurance offers all the important features of life insurance and a rewarding investment option. While the returns certainly are market-linked, you get the flexibility to switch between funds to try and earn better returns. At the same time, you also have your life covered in case if something happens to you within the policy duration. 

You can consider whole life insurance if you are looking for a higher coverage amount or consider other options like mutual funds if you already have life insurance. But if you want to purchase life insurance and also want to start investing, especially for your long-term goals, ULIP is one of the best options. 

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