Life goals are very important whether it is to start your career, to purchase your own dream home, to plan your children’s education, or your retirement. To ensure you are able to achieve these life goals, you need to plan your finances wisely. One needs to start early in life to get their life goals done.
You may smartly plan your finances. However, life is unpredictable and an unfortunate event may endanger the financial security of your loved ones. An excellent way to protect your family from such difficulties is to avail of life insurance.
Traditional life insurance plans offer coverage that pays the policy benefits in case any of the covered incidents occur. Most of these traditional plans do not provide any returns on the premium you pay to procure the life cover.
An alternative to traditional plans is a unit-linked insurance plan (ULIP). This plan combines life cover with the potential to earn returns on your investment. A certain portion of the premium amount is invested in different securities such as equities and debt to deliver returns.
These types of insurance plans are an excellent tool to achieve various life goals. You may use these to meet your financial goals without worrying about the liquidity. Here are six ways in which you may use ULIP investment to achieve life goals.
- Life cover for protecting your loved ones
When you have paid all the premiums in a timely manner and in case of your sudden demise, your beneficiaries receive a lump sum payout. The amount is the higher between the sum assured and the value of the fund based on the performance of the market-related investments. Some insurers may guarantee a minimum death benefit for your loved ones in case of your demise during the policy term.
- Different investment strategies
Every life goal requires a distinct investment strategy to ensure you are able to meet these without any difficulties. When you invest in a ULIP insurance, you may choose different investment strategies to accumulate a corpus to meet your goals. If you are willing to assume higher risks to earn potentially greater returns, you may invest the premium in an equity fund. If you are risk-averse or your life goal is in the short-term, you may opt for a debt fund to ensure the security of your investment. You may also invest in hybrid funds that invest up to 60% of the amount in equities.
- Return of mortality charges
Insurance companies levy some mortality charges to provide life coverage. Some insurers add the total mortality charges deducted during the policy term to increase the fund value at the time of maturity. Therefore, you are able to earn higher returns, which provide you with more money to achieve your life goals.
- Create value in the long-term
The minimum lock-in period for ULIPs is five years, after which you may exit your investments. This ensures investment discipline because the life cover encourages you to pay the premium in a timely manner to ensure the financial security of your loved ones in case of any untoward incident.
However, most of these plans have a maturity of 15 to 20 years. It is recommended that you stay invested for a long period i.e. until maturity to maximize your returns and accumulate a higher corpus through loyalty additions to enable you to achieve your life goals without any financial difficulties. These are a certain percent of the sum assured and are added to your maturity corpus. Such rewards are not included in other investment products like mutual funds.
Another advantage of staying invested for the long-term is the effect of compounding. With compounding, your returns are reinvested, which earn further income. Therefore, you are able to accumulate more when you keep your money invested for the long-term.
- Free switching
A unique feature that makes a ULIP beneficial is free switches among the different asset classes. You may invest your premium in equities, debt, or a hybrid fund as per your risk appetite and personal requirement. However, the returns depend on the performance of these underlying securities. To reduce the risk due to market downturns, insurers allow you to switch from one fund to another without any charges. This allows you to mitigate the risk of investing in market-related instruments.
Insurers provide the ULIP NAV (net asset value) on their websites that allow you to make the accurate investment decision and switch funds as deemed necessary.
- Tax benefits
Under section 80C of the Income Tax Act, 1961, a premium of up to INR 1.5 lakh is exempt from taxes. Moreover, if the total premium paid is less than 10% of the sum assured, the maturity benefits are also exempt from taxes under section 10 (10D) of the Income Tax Act. Therefore, the tax benefits increase the amount available to invest from the total premium, which allows you to accumulate a larger corpus. Similarly, the tax benefits on the maturity proceeds provide you with greater disposable income to achieve your life goals.
Several experts may advise you to keep life cover and investment separate. They recommend buying traditional insurance or term plans for procuring life coverage. Moreover, they advise you to invest in equity funds to achieve your long-term financial goals. However, a major limitation to this recommendation is that you may not have the experience or expertise to choose the right funds to earn higher returns and accumulate the required corpus.
A ULIP overcomes this limitation because a single financial product combines life cover and returns. Invest in one today and achieve your financial goals without any difficulties and get your life goals done