Why ULIPs Might Be the Best for Your Financial Planning: A Complete Guide

People generally have different financial goals, but desires like wealth creation to support retirement years and securing family’s financial future for unfortunate times remain common. 

ULIPs are gaining massive popularity in the Indian financial market as they provide dual benefits of protection and growth. 

This blog will help you understand why ULIPs are the best for your financial planning so you can make informed investment decisions. 

What is ULIP (Unit Linked Insurance Plan)?

ULIP is a specialised financial product that combines the dual benefits of Protection Plans and Investment Plans. These plans are ideal for most individuals as they provide Life Insurance coverage and market-linked returns, supporting two financial goals simultaneously.

If you’re looking for the best ULIP plans, consider exploring the Shriram Life Wealth Pro Plan (UIN: 128L096V01). 

Besides life coverage and the potential for higher returns, it provides liquidity through partial withdrawals after the lock-in period, cost-free fund switching, customised life cover, and several benefits. 

How ULIP Works?

While the previous section cleared what is ULIP, let’s now explore how ULIP works. Your ULIP premium payments are divided into two parts. One portion is used to secure Life Insurance coverage. 

The balance is invested in market securities like equities, debts, or balanced funds of the policyholder’s choice to earn higher returns.

Upon maturity, the accumulated fund value is disbursed to the policyholder. If the policyholder dies before the policy maturity, the amount is given to the nominees. 

How to Maximise Returns from a ULIP?

There are numerous ways to maximise your ULIP returns, but you may consider exploring the following:

• Remain invested for a longer period to earn higher returns. The same technique can maximise returns from Savings Plans or other investments.
• Allocate funds based on your desired investment horizon, risk profile, and financial goals.
• Invest in ULIPs like Shriram Life Growth Plus Plan (UIN: 128L066V03) that provide cost-free fund switching.
• Minimise your partial withdrawals so the amount remains invested for an extended period and earns higher returns. 

Who Should Buy a ULIP Plan?

If you’re wondering isULIP a good investment for you, we’d say it’s ideal for anyone who wants to obtain dual benefits of financial growth and protection from a single financial product. 

You can also choose ULIPs to complement your traditional investments, such as insurance for retirement, Child Plans, mutual funds, etc., to accomplish multiple financial goals.   

How is the ULIP Plan Structured?

ULIP plans act as an insurance and investment product through a well-defined, straightforward structure. A portion of the premium payment is used to provide Life Insurance coverage and the balance is invested in market-linked funds of your choice.

The Life Insurance component accumulates over a period, whereas the chosen funds earn returns according to the market conditions. 

Types of ULIPs

Equity-based ULIPs

These plans invest more in equity and equity-related securities, such as stocks. While they carry higher risk than debt and balanced funds, their potential to earn greater returns is also high. 

It is one of the best ULIP plans for people with high-risk profiles who prioritise wealth creation and life coverage. 

Debt-based ULIPs

Debt-based ULIPs are a more stable investment option for people with low risk tolerance. In such plans, fund allocation is primarily toward debt instruments such as corporate debt, government bonds, and other fixed-interest instruments. 

If you prefer capital preservation and stable growth, you may proceed with debt-based ULIPs. 

Balanced ULIPs

Also known as hybrid ULIPs, these plans generally invest in equity and debt instruments to balance risk and growth. 

The equity-debt ratio can vary depending on the fund’s objective, providing a diversified investment approach. Investors with a moderate risk profile should explore balanced ULIPs.

Benefits of ULIPs

Dual Benefit of Insurance and Investment

One of the biggest benefits of ULIP is its dual benefits of wealth creation and Life Insurance coverage, making it a comprehensive investment tool. 

You may invest in ULIPs like the Shriram Life Golden Jubilee Plan (UIN 128L095V01) as it builds financial security for your family while letting you earn market-linked returns from equity, debt, and balance funds. 

Tax Benefits

Anyone wondering is ULIP tax-free should check ULIP tax implications regulated under sections 80C, 10(10D), and 45. You can deduct ULIP premium payments u/s 80C and enjoy tax exemption u/s 10(10D) and 45 if all relevant guidelines are met.

Flexibility

ULIP provides extreme flexibility in the form of partial withdrawal after the lock-in period, unlimited fund-switching throughout the policy period, top-up options, etc., to support your evolving financial needs and goals. 

What is the Lock-in Period of a ULIP?

There is a 5-year lock-in period for most ULIPs. However, it can be higher for some policies, so check it with the respective insurer. This lock-in period encourages disciplined investing and allows the fund value to grow steadily with the power of compounding. 

ULIP vs Other Investment Options

Features of ULIP Plans

Dual Benefit Structure

All the best ULIP plans feature the dual benefits of Life Insurance coverage for financial security and the potential to earn higher market-linked returns for wealth creation. 

Tax Benefits

Tax deduction and tax exemption benefits are available under Sections 80C, 10(10D), and 45. While premium payments can be deducted to lower taxable liability, tax exemption (if available) can increase your overall ULIP returns.

Choice of Funds

You can choose your desired funds while buying the policy or change it numerous times throughout the policy duration to meet your evolving financial needs and risk profile.

Partial Withdrawal

Partial withdrawal is available after the initial lock-in period of 5 years. You can use this feature to cover any unexpected financial emergency. 

Transparency

The transparent policy structure and charges make ULIPs one of the most desired investment options for most investors. 

Fund Options Under ULIPs

ULIP features numerous fund options, such as equity, debt, balanced, and more. You must check the available fund options before investing, as not every ULIP has the same fund choices. 

What are ULIP Charges?

Since ULIP has an investment and insurance component, insurers levy various charges to cover the management expenses. While transparent, they may lower your ULIP returns slightly. 

Premium allocation charges, fund management charges, mortality charges, surrender charges, and policy administration charges are a few ULIP charges you may encounter. You must choose ULIPs with minimum charges to maximise returns. 

Practical Tips for ULIP Investors

If you’re new to ULIP investments, consider implementing the following tips for maximising returns:

• Stay invested for a longer duration to earn substantial returns
• Choose fund allocation based on your risk profile
• Utilise free fund switches strategically depending on the prevailing market conditions
• Avoid premature surrender or excessive partial withdrawals
• Monitor fund performance frequently and make relevant changes whenever needed
• Consult a certified financial expert for personalised guidance

Conclusion

ULIP is a smart investment choice for modern investors as it fulfils two financial goals at once – securing the family’s financial future through Life Insurance coverage and wealth creation through market-linked returns. 

If you’re ready to strengthen your and your family’s financial future, you may consider adding the best ULIP plans to your portfolio. Start by exploring ULIPs at Shriram Life Insurance, as each plan is uniquely designed to fulfil diverse financial goals.