Wealth Guide: ULIP Investments – Benefits Explained, Myths Busted by an Expert

ULIPs remain a viable option for long-term planners and compulsive spenders, and have gained popularity by offering policyholders the flexibility to invest in the market based on their financial priorities and risk appetite. ULIPs allow policyholders to align their investment with their long-term goals by offering them a wide variety of funds to invest. Investors can achieve their goal of wealth creation by selecting equity- or debt-based funds (or both) based on their long-term goals, as well as life insurance coverage that helps them secure security and safety of their investment. Anil Kumar Singh, Director of Actuarial, Aditya Birla Sun Life Insurance Company Limited (ABSLI), shares his knowledge on ULIPs and explains the reasons to support your ULIP investments.

“The long-term nature of ULIPs allows it to absorb various up-front costs and achieve robust returns through sustained, compounding returns. However, many policyholders terminate their policies mid-way through because they feel overwhelmed by d “huge lump sum premiums. To encourage investors who prefer a staggered payment method to maintain liquidity, insurance companies are offering the option of opting for a monthly mode over premium payment. This allows policyholders to leverage their ULIP investment by giving it the SIP advantage and will solve their liquidity issues associated with the annual payment renewal mode,” said Anil Kumar Singh.

Benefits of a ULIP plan

Tax benefit

“A ULIP policy comes with several tax benefits. Premiums paid under the plan are tax deductible under section 80(C) and the death benefit in the plan is exempt from tax under section 10(10D). Tax benefits enhance savings, leading to increased disposable income that can be used for other investments or expenses,” Singh said.
Protective –

“Your ULIP investments not only allow you to gain financial growth and achieve your personal goals, but they also ensure that your family is protected in the event of absence. The death benefit provides policyholders with a financial cushion in the event of an emergency, allowing them to continue to live a life of dignity and luxury,” he added.

Flexibility to balance the portfolio between equity and debt with the convenient change and redirection option

“A ULIP gives you the choice of which fund you want to invest in. For example, if you have a high risk appetite, you can invest in equity funds. The advantage of this option is that it guarantees high returns at a higher level of risk. It’s the kind of investment most people make when they’re young, have a lot of time ahead of them, and have a lot of resources at their disposal,” he suggested.

“If you prefer lower risk, you may want to consider debt funds which lower the risk quotient of your portfolio and may be recommended as you get closer to your investment goal.”

Consistently higher yields

“ULIPs offer additional returns in the form of rewards, wealth boosters, guaranteed add-ons, and more. that are added to your account over time. These bonuses can significantly increase the value of your fund if you stay invested for a long time,” he explained.

Increased liquidity

“To preserve liquidity, policyholders have the option of opting for the monthly mode with payment of the premium. Therefore, there is no need to pay a large sum all at once. It will likely be a slightly more expensive proposition due to the modal load, but the benefits it can bring in the long run far outweigh the expense,” he said.

Clearing the myths around ULIPs –

ULIPs do not provide long-term returns –

“Like any other financial product, risk and return are also directly proportional in ULIPs. A careful approach when selecting funds for your ULIPs can provide substantial market returns, provided you have remained invested for the long term. “, he explained.

ULIPs are expensive –

“Due to high fund management and premium allocation fees, many people are hesitant to invest in ULIPs and perceive them as an expensive investment vehicle. However, IRDAI has addressed this issue and has now reduced the annual charges from 6-10% to 3% for the first 10 years of ownership and 2.25% for more than 10 years of ownership. Now, low-cost ULIPs are priced much lower than before and are affordable for everyone,” he added.

“In this uncertain and dynamic scenario, protection and investment are important. This is where ULIPs, or Unit Linked Insurance Plans, come into play. Having a combination of insurance and investment, a ULIP can help secure you and your family’s financial goals. Additionally, ULIPs generally instill a forced sense of discipline in the investors most suited to this product. Through ULIPs, policyholders can achieve a strong and balanced return, ensuring that there is no trade-off between long-term goals and objectives and short-term needs and wants. Therefore, policyholders are advised to retain their investments by choosing the monthly renewal payment option if they feel burdened with a one-size-fits-all payment method,” he concluded.

(Disclaimer: Opinions/suggestions/advice expressed here in this article are investment experts only. Zee Business suggests its readers consult their investment advisors before making any financial decisions.)