Why Include ULIP In Your Financial Plan For 2025?

In today's rollercoaster of a financial world, more people are turning to Unit Linked Insurance Plans (ULIPs) because they offer both insurance protection and a shot at growing your money. Take Riya, this career dynamo, making her way through financial ups and downs. She went for a ULIP not just to safeguard her family's future but also to build up a nice savings pot. By sticking to her premiums, she not only watched her investments grow steadily but also made sure her loved ones were financially secure.

In the realm of personal finance, ULIPs shine bright as versatile tools. They not only provide life insurance but also offer a gateway to invest in various market funds. This unique combo makes ULIPs a top choice for those aiming to plan long-term goals like saving for education, gearing up for retirement, or even snagging that dream home. Plus, they ensure a financial safety net for dependents should life throw a curveball.

In this article, we dive deep into the world of ULIPs—how they work, the benefits they bring, and why they're a must-have in any savvy financial playbook.

So, let’s begin!

What Is ULIP?

So, what's the big deal about ULIPs? They're like a combination of investment and protection. Imagine putting away money for your dream trip or setting aside funds for your child’s college education, yet at the same time ensuring that your loved ones will not have economic problems no matter what. ULIPs do just that. They help you accumulate a substantial sum of savings aimed at long-term purposes without hurting your savings in the process. Plus, they've got your back with insurance coverage that protects your family members against any eventualities.

So, what does a ULIP actually do? They-

• Fulfil long-term aspirations.
• Make sure your family doesn't get financially caught off guard by any unexpected curveballs.
• Generate wealth.
• Save taxes and many others.

Wondering how ULIPs dive into the financial deep end? Let’s learn all about it below!
 

How Does It Work?

Alright, let's break down ULIPs in plain, everyday talk. It  has two purposes: it serves as a blend of mutual funds and term insurance. To keep your ULIP running smoothly, you just need to pay a set amount at regular intervals—it's called a premium. Nevertheless, what you can regulate is the proportion of the premium that you can pay. 

So, when you pay that premium, part of it goes towards your life insurance cover and the rest goes towards your investment for tomorrow.

So, first, let’s get on with the insurance component of ULIP!

So, with a ULIP, if something unanticipated happens to you while the policy is active, then your insurance company will provide your nominee with a death benefit. This effectively acts as financial security for your dearest ones. They can continue chasing their dreams and aspirations without worrying about any financial setbacks.

And what about the investment component?

Did you know that ULIPs are pretty unique among life insurance plans? They’re the only ones where you can invest in the stock market. So, unlike those traditional life insurance deals that give you fixed returns no matter what, with a ULIP, how much you get back depends on how the stock market’s doing at the time.

So, here’s how it works: the insurance company takes all the money you and other policyholders have paid and invests it into funds they’ve picked out.
 

What Happens Once You Invest The Money?

Let’s first discuss net asset value (NAV) before delving into the intricate details concerning your investments. NAV means the value of the fund you are investing in on your date of investment. It is not static and varies daily in the same way as stock prices.

Once your money's in, the investment turns it into units with its net asset value (NAV). Think of it like each unit is assigned a specific value, and the number of units you get is determined by how much money you've invested relative to that value. 

The face value is called the 'Net Asset Value' or NAV. It changes daily depending on how well the fund performs in the market. Each fund has its own NAV, so it varies from one to another.

You can easily calculate the number of units, where

Number of Units = Invested Money/Net Asset Value

Wondering why ULIPs are the secret sauce in your financial recipe? Dive into this unique blend of investment and insurance for your long-term goals!
 

Why Include ULIPs In Your Financial Plan?

In the vast financial products world, people are getting Unit Linked Insurance Plans (ULIPs) more and more in an attempt to gain financial empowerment. So, what is a ULIP? The easy answer is that a Unit Linked Insurance Plan, commonly shortened into ULIP, is a life insurance that has two parts—Investment and Insurance.

A ULIP gives you a chance to invest in market instruments towards long-term objectives while keeping a life cover for your legal dependents!

In a ULIP, you've got two things happening: one chunk of your cash goes into keeping your life covered, and the other chunk goes into investments for your future.

In such cases, one part of the payment goes toward the premium covering your life risks, while the other is used for investment purposes.

Unit-linked insurance plans (ULIPs) assist in putting away funds for future purposes like savings for your spouse’s education after high school, money for the marriage of kids, purchasing a house, offsetting debts and so on. These plans also guarantee that your family will be financially secure if something unfortunate were to happen to you, providing insurance coverage.

Here are the compelling reasons why ULIP plans are your ticket to a secure and prosperous future -

1. Wealth Generation
   When you get a ULIP, it's not just about life insurance – you're diving into the stock market too. By regularly putting money in over the long haul, you can hit some serious pay dirt when the policy matures. Here’s the deal: Before they start investing your dough, the insurer takes a cut for fees and stuff from your premiums. After that, they stash what’s left into various funds.
   
   Now, here’s where it gets interesting: You've got choices – debt funds, money market funds, equity funds, and balanced funds. Each one comes with its own level of risk and potential rewards. The whole point? To make sure your money grows and grows, so when you cash out, you’re sitting pretty with a nice chunk of change.
    
2. A Lump Sum Amount Can Help You In Achieving Your Long-Range Objectives
   ULIPs are like the tortoises of the financial world—they last until the last mile and come out as victors, taking everything put together; you stick with the plan, and you get higher returns. When your policy period ends, you get a bonus—a lump-sum payout. This is called the maturity benefit, which basically means the fund’s value on the day it matures. This maturity benefit comes in handy for those big life goals you've been saving up for—like your kid's college fund, a dream wedding, a down payment for your home loan, or even planning ahead for retirement.
    
3. Grow Your Wealth By Making Modest, Long-Term Investments
   This plan sets you up with a smart way to save. You can easily pay your premiums monthly, quarterly, half-yearly, or yearly—whatever fits your policy's terms and conditions. Paying these fees means you are building significant wealth for your long-term objectives.
   
   These plans offer you better returns in exchange for your premiums compared to other plans. ULIPs are like having a two-for-one deal: you save up and watch your money grow at the same time instead of sitting in a savings account or disappearing on things you don't really need.
    
4. Fund Switching
   An interesting feature of ULIPs is that you still have the freedom to move your investments elsewhere. If you are not content with your recent investment fund, you have the chance to move to another one that meets your financial plans well. 
   
   Do you know how some days your investments ride high, and other days they seem stuck? With ULIPs, it's like having a magic wand for your funds. If you notice your current fund isn't performing well and could be heading towards losses or capital gain tax implications, you've got the power to switch funds. This is one of the most crucial ways by which you can protect your capital or maximise your returns.
    
5. Partial Withdrawal Of Funds Is Allowed
   ULIPs are a popular choice because they allow partial withdrawal. Thus making them attractive to many people. If you ever find yourself in urgent need of cash, you can take out some money from your ULIP’s fund value. No need to stress about selling off stuff, taking out big loans, or getting into debt—it’s like tapping into your savings when you really need it, without all the hassle.
   
   Life has this knack for throwing unexpected curveballs at us, like sudden medical bills or urgent home repairs that catch us off guard. With the partial withdrawal feature, you can handle these expenses without having to touch your savings. It’s like having a backup plan for life’s surprises, keeping your financial peace of mind intact.
   
   However, it's important to note that you can only access your fund value after a lock-in period of 5 years. During this time, the accumulated funds cannot be withdrawn or liquidated. This means your investment stays put, growing steadily to support your financial goals over the long term.
    
6. Safeguarding The Financial Future Of Your Family
   Imagine you're the main provider for your family. If something unexpected happens and you're not around to support them financially, it could really throw everything off, right? But with a ULIP, you can plan ahead. It's like handing your family the reins to their own destiny, making sure they're looked after no matter what life throws their way.
   A death benefit will be provided to your dearest ones, and they can fulfil all their aspirations without financial obligations. Your nominee can receive this death benefit in either of the two ways-

• Sum assured or fund value, depending upon whichever is higher,
• Sum assured plus the fund value.

7. Customisation
   Everyone's got different dreams and goals in life, right? ULIPs are pretty flexible because they let you tailor how you invest your money.  Through the ULIP, you can tailor your investment strategy just how you want it for important milestones like saving for education, planning for retirement or even owning your dream home. It is similar to having a personalised financial roadmap for your growth.
   
   With ULIP, it's possible to choose where you want to invest - by simply considering the expected return and risk tolerance. Plus, you have the flexibility to tailor your premium payments to suit your convenience—whether annually, semi-annually, quarterly, or monthly. Lastly, you can go for add-ons or riders for specific situations. It's all about making investing work for you your way.
    
8. Tax Benefits
   Under Section 80C of the Indian Income Tax Act, if you're putting money into a ULIP, you can deduct up to Rs. 1.5 lakh per year from your taxes for the premiums you pay. Precisely speaking, after the five years of the lock-in period, the entire amount can be withdrawn from the ULIP without being taxed, unlike mutual funds, which are taxed.  No capital gains tax is imposed as well. Moreover, the maturity funds you get after the insurance term are tax-free, as per Section 10D of the Income Tax Act.
   
   Hey, if something unexpected happens, here’s a nugget of comfort with ULIPs: your nominee pockets a death benefit that’s completely tax-free under Section 10(10D) of the Income Tax Act. Sweet deal, right? But, you know how it goes – there are some terms and conditions and limits for those tax benefits.
    

Summing Up!

ULIP plans - they're like this ultimate combo deal for your financial game plan. You get the insurance cover to keep your loved ones safe and investments that ride the market waves to grow your money. It resembles having this Superman safeguard that not only protects your family's future but also makes way for building wealth down the road. So, it’s not just about securing the present; it’s about paving the way for a brighter, more prosperous future, all enveloped with one savvy move.