Unit-linked insurance plans (ULIPs) offer policyholders dual benefits of insurance and investments. When a policyholder invests in a ULIP, a part of the premium goes towards life cover. The remaining amount is invested in different instruments like equity and debt funds, stocks, government bonds, etc.
Why should you invest in ULIPs?
ULIPs are one of the best options to generate long-term returns while ensuring the financial protection of the family. ULIPs also offer tax benefits.
Here are some important factors to consider when investing in a ULIP-
- Lock-In Period
ULIPs have a lock-in period of 5 years. Therefore, it’s a great option for people who are looking for long-term investments.
ULIPs offer policyholders the flexibility to choose the fund options. Furthermore, policyholders can switch funds during the tenure of the plan. They can switch funds based on their financial requirements.
- Long-Term Financial Goals
As policyholders can switch funds based on their performance, it can help them gain significant returns if they stay invested for the longer term.
- Claim Settlement Ratio
One of the most important factors to consider when buying a ULIP is the claim settlement ratio of the insurance company. The claim settlement ratio is the number of claims settled by the insurer compared to the number of claims raised. Therefore, it’s wise to select an insurer with a high claim settlement ratio.
- Performance of the Funds
As ULIP investments are linked to the market, it becomes very crucial to check its performance. Assessing the performance of the funds can help people select a plan based on their risk appetite.
How to Gain Returns by Investing in a ULIP?
One of the reasons people opt for ULIPs is to earn substantial returns. Here are some ways that can enable policyholders to gain higher returns-
- Use the Fund Switching Option
The fund switching option enables the policyholders to switch funds. This option can help policyholders build a stable portfolio.
For instance, a policyholder has invested more money in debt funds. In case the market is going up, he/she can switch funds to equities in order to increase the returns. With the help of the fund switching option, a policyholder can build a stable portfolio while earning good returns.
- Financial Protection
While a ULIP plan can provide good returns, it can also ensure the financial protection of the policyholder’s family. If the policyholder passes away during the tenure of the plan, then the insurer can offer a sum assured to his/her dependents. This sum assured can financially secure the family of the insured person.
- Tax Benefits
Apart from returns and life cover, ULIPs also provide tax benefits to their policyholders. Under Section 80C, the premiums paid to purchase a policy can be claimed as a tax deduction up to ₹1.5 Lakh.
Invest in ULIPs to Get Higher Returns
With ULIPs, policyholders can provide their family with financial security. ULIPs can also help them gain higher returns. However, to achieve higher returns, it’s recommended to stay invested for the long term.