The world is changing in more ways than one. Diseases are turning into pandemics, the economy is fluctuating like a jazz band, and now, with AI on the horizon, even the job market is volatile. This is the time to not only prepare for your legacy but also financial planning for the life that you still have.
Then again, investing in the market can be a tricky aspect, but one that is quickly becoming necessary if you want to survive the economic crunch. You need to plan for your present and simultaneously prepare for the future of your loved ones. And that is where ULIP plans to serve as the ultimate financial instrument.
So, what are ULIP plans?
Ulip plans are financial instruments that help you insure your life as well as the future of your loved ones and invest money in the market to make more money. Essentially ULIP plan is excellent means to invest in yourself now and in the future while still ensuring that in case of an untimely death, your dependents will have some money to help them in critical situations.
ULIP plans are life insurance instruments in the core. When you purchase ULIPs, also known as Unit-Linked Insurance Plans, you need to choose the sum assured that will help your family and loved ones cope with their financial setbacks in case of your unfortunate demise.
Much like most life insurance plans, you will need to determine the tenure of your policy. It can vary based on your needs because there is a special addendum that we will get to in a minute.
Apart from these basic life insurance parameters, you also have the option to invest in market-linked and risk-free instruments to grow your financial net worth. With the help of your insurance provider, you can choose viable investment plans in debts, equity, or liquid funds and build a portfolio. You may even mix it up in the available funds to balance your risk factor and improve your return on investment.
What are ULIP calculators and how can they help choose ULIP plans?
Due to the volatility in the market, choosing the right ULIP plan can seem a little daunting. That’s when the ULIP calculator becomes your best friend. It is a financial tool that helps you determine which financial instrument is best suited for your monetary growth as well as to secure the future of your loved ones while reaching a realistic goal.
The ULIP calculator takes into account the following details:
- Your details such as age and income
- Your preferred sum assured
- Tenure of the policy
- The financial goal that you wish to accomplish with investments
- How much time do you allow yourself to reach that financial goal
- What portion of your funds do you want to invest in risk-free markets?
- The portion of funds that you want to allocate in market-linked instruments
- What percentage of profits do you expect from risk-free and market-linked investments individually?
Based on these factors, the ULIP calculator will run the numbers based on market conditions, risk appetite, and your basic life insurance policy and offer a realistic rate of premium that you have to pay as investments.
If you choose a high sum assured, low tenure, and a huge financial goal with risk-free investments, your rate of premium will be higher because the low-risk markets yield very small profits. Therefore, you will need to invest more to make more money.
If you choose a high sum assured but with a long policy tenure, the rate of premium will decrease. If you invest in high-risk market instruments, your premiums may decrease further. Even if you diversify your investments, you will have to pay less as the high-risk markets yield good results.
The ULIP calculator helps you figure out realistic expectations for your return on investment. You can change the figures and check what works best for you.
How does ULIP truly help invest and insure at the same time?
ULIPs have certain ingenious additions that are truly the gateway to investing smartly. Remember the special addendum with ULIPs?
Not only do they allow you to invest in market-linked and risk-free funds during your life and payout at regular intervals during the tenure of your policy, but they also offer complete benefits. In case of unfortunate demise, the insurance provider pays your beneficiaries the entire sum assured despite earlier withdrawals from your investment. And that’s not all.
In case you survive the tenure of your ULIP plan, you receive a maturity benefit in the name of the premiums you paid over the years. This is possible because the income that you receive during the tenure of your ULIP plan through investments is the Long Term Capital gain.
Both the death benefit and maturity benefit are tax exempted. That means you or your loved ones receive a lumpsum amount of money at the end of the tenure or in case of demise. Either way, this is money that you can use to pay back loans, mortgages, children’s education, weddings, family emergencies, medical bills, and more. After the years you spend learning how to invest, you can even use the tips you picked up to invest the lumpsum amount in a low-yield bond or long-term equity where your money will continue to work for you.
Not to mention, if your premium for the ULIP plan is less than 10% of your sum assured, after factoring in the investment parameter, it is also tax deductible under section 10 (10D). Additionally, if the annual profits from your investments are less than INR 1 lac, you are exempted from tax. If the rate of return on equity is more than INR 1 lac, then you will need to pay 10%, and 20% for non-equity investments.
More than anything, ULIP plans are one-stop solutions to grow your finances and insure your family at the same time. You can invest in the market, grow your funds during your lifetime, and enjoy the fruits of your labour. And, in case of an untimely demise, your family still receives the entire death benefit, and if there are lingering bonuses that weren’t withdrawn as per the contract.
Conclusion
There are several types of life insurance plans that allow you to withdraw money whenever you are in crisis or earn bonuses at regular intervals. However, those policies also reduce your maturity benefits, even though the death benefit remains intact in most.
If you want to invest and insure yourself at the same time, then ULIP plans are far safer bets. Your death benefit and maturity benefits earn you lumpsum cash, and you can enjoy lucrative returns on your investments in real time during the tenure of the policy.