How ULIP helps manage your wealth during COVID-19

One thing that Covid-19 has taught people, is the need to be financially prepared to take care of all kinds of situations. The uncertainty about the future and the sudden medical expenses have highlighted the need to have adequate wealth to deal with any kind of situation. While insurance policies should form an integral part of financial planning, plans that offer both insurance cover and wealth creation are an added advantage. The versatility of ULIPs or Unit Linked Insurance Plans, and the benefits offered by it can be used to manage wealth and generate some good returns. Let us find out more about the importance of ULIPs during Covid-19.

Understanding ULIPs

Anyone above the age of 18 can take a ULIP policy to meet long-term financial goals and secure the future of their loved ones. The primary aim of these plans is to help the policyholder accumulate funds for funding specific goals while enjoying the protection of life insurance. It is the type and the timing of the goals that an investor wishes to achieve that will help them in choosing the right type of ULIP. The goals could be – buying a home or a car or building a corpus for retirement or ensuring the financial stability of the family. Such goals can be achieved through some disciplined investing in various types of financial instruments.

ULIPs and Wealth Management

Investors can continue to invest in ULIPs during the pandemic, but they should take steps to minimise the risk by balancing their investment portfolio and choosing plans that are managed by professionals with a good track record. ULIPs provide investors with automated portfolio management options, thereby helping them register some good returns over the long run. Here, we talk about some tips to use ULIP for meeting specific goals and managing their wealth:

  • Choose a payment frequency– ULIP plans can entail the payment of the maturity amount in lump sum or instalments. The choice will depend on whether the investor wants to make an outright purchase of a home or a car or requires money in instalments to fund regular expenses. ULIPs allow investors to choose the payment plan as per their requirements.
  • Modify the Insurance Coverage-A change in the life goals with age or overtime can be easily handled by opting for ULIP plans that modify the premium payment term as well as the sum assured during the tenure of the policy. The use of a ULIP Plan calculator can help in finalizing the amount to be invested and the duration of the policy.
  • Modify Your Investment Allocation– You can allocate your investment funds based on a specific strategy and change the allocation if the need arises or the situation changes. A change in the risk-bearing capacity can also be handled by modifying the investment options from debt to equity or vice versa. Many insurance companies allow you to shift a couple of times during a year.
  • Stay Invested for a Longer Duration-The returns from investments made under a ULIP plan can be maximized by staying invested for a longer duration. Some insurance companies offer loyalty additions for staying invested for a specific number of years.
  • ULIP for Secured Retirement– Investors looking to have a secure financial base after retirement can choose to invest in retirement-oriented ULIPs that provide a steady flow of income after a certain age. Some insurance companies even offer insurance coverage for the whole life of the policyholder.
  • Invest Systematically– The mandatory lock-in period in ULIPs allows investors to become systematic in their savings and investments, thereby helping them to create wealth for achieving their goals.

You can Save Taxes Too!

ULIPs are an attractive mode of investments as they offer tax benefits too:

  • The premiums paid for ULIP investments are eligible for tax exemption under Section 80C. The total exemption limit is Rs 1.5 lakhs.
  • The maturity or the death benefit of a ULIP plan is exempt from income tax under Section 10D if the annual premium is less than or equal to 10% of the sum assured for the entire term for plans purchased after April 1, 2012.
  • ULIP plans allow investors to choose the instruments: equity or debt in which they wish to invest. Investors also have the option to switch between equity and debt without worrying about tax liabilities.
  • No long-term tax is applicable to the market returns derived from ULIP investments.

ULIP policies offer you a chance to create wealth to meet your long-term goals or plan for your retirement or ensure the financial stability of your family in your absence. And all of this comes with the added advantage of tax benefits.