A Beginner’s Guide to ULIPs (Unit Linked Insurance Plans)

People are always looking for ways to earn high returns through their investment portfolios. But you need to be smart and have at least a basic understanding of market performance when managing market-linked investments.

One such product that has gained popularity among young investors is the Unit Linked Insurance Plan (ULIP). For those who have little to no knowledge about this product can treat this article as their go-to guide for ULIP investments.

What is ULIP?

Firstly, the ULIP full form is Unit Linked Insurance Plan. It is primarily an insurance product that offers dual benefits of insurance as well as investment. Here, a part of the premium paid is used for life insurance coverage, while the remaining amount is utilised for investing in funds of your choice.

How Do ULIP Investments Work?

As we mentioned earlier, premiums paid towards ULIP are partly used for insurance coverage while the remaining amount is invested in funds of your choice. You can either invest in equity funds, debt funds, or a combination of the two.

One unique benefit of investing in ULIP is that you can pay the premiums monthly, quarterly, biannually, or annually, depending on your financial conditions at the given time.

Moreover, ULIP investments are fit for all types of investors. If you are a low-risk investor, you can plan your portfolio around debt funds. On the other hand, high-risk investors can invest in equity-oriented funds.

Know that ULIPs come with a five-year lock-in period. If you want to earn high returns, it is advisable to invest in long-term ULIPs so as to average the market fluctuations.

Why Should You Invest In ULIP Investments?

There are multiple benefits that ULIP offers –

  1. Since ULIP is primarily an insurance product, investment is an added benefit it offers. Hence, ULIPs are well-known for their dual benefits.
  2. With long-term ULIPs, you can accomplish short-term as well as long-term financial goals, as the returns on them are reasonable.
  3. ULIPs offer the flexibility to switch between the funds as you desire. You can switch between debt to equity funds and vice versa depending on market performance.
  4. ULIP also offers tax benefits under Section 80C of the Income Tax Act, 1961. Here, you can avail INR 1.5 lakh in tax on the investments made.
  5. Lastly, ULIPs are more cost-effective compared to most other investment products in the market.

Factors to Consider When Choosing ULIP Investments

Some of the key factors that you should consider when choosing ULIPs are as follows –

  • Understand your personal financial goals as ULIPs can help you from funding your child’s education abroad to savings for your retirement
  • It is beneficial to compare different ULIP plans and its returns before investing
  • Make sure the policy term you have chosen for your ULIP is aligned with your long-term financial plans

Since the returns are market-linked, it is advisable to invest in ULIP for the long-term. Overall, ULIP investments not only allow you to accomplish your financial goals but also ensures that your loved ones are protected.