ULIPs for protection and wealth

High inflation has made financial planning to meet long-term goals a daunting task. While equities are perhaps the best asset class over the long term, the expertise or time to monitor and manage investments has become a challenge.

ULIPs, which offer life cover besides delivering healthy returns on the investment, is one option.

A buoyant equity market can help ULIP investors achieve good returns on the premium. The feature that distinguishes ULIPs from mutual funds is that you have the flexibility to alter your asset allocation at any given point. A few ULIP products offer automatic re-balancing, based on the age of the individual.

In the event of the unfortunate death of the insured, the insurance company will pay the sum assured to the nominee.

Choosing the product

Though volatility is implied, given that ULIPs invest in equities, systematic investment of the regular premium payments can help mitigate this risk factor.

Additionally, the premiums and maturity amount get tax benefits u/s 80C and 10(10) D respectively, of the Income Tax Act, 1961.

ULIPs can be selected based on one’s earnings, expenses, liabilities, long-term financial goals and age. Life insurance companies have tools and calculators to enable individuals select the right product.

Tool to build wealth

Thanks to the new regulations, ULIPs have now become more customer-friendly. The regulator has capped the management fee and surrender charges on ULIPs.

This will improve the returns. For instance, the charges are as low as 1.5 per cent for certain schemes with policy term as long as 20 years. This not only makes life insurance affordable but also helps individuals achieve their financial goals.

In case policyholders stop making premium payments, the money from such lapsed policies is transferred to a ‘discontinuance fund’ where it earns an interest rate equivalent to the savings bank account rate. This ensures that the policyholder’s funds continue to generate returns.

ULIPs, thereby, not only provide protection to the family of the policyholder, but also serve as a tool to build wealth over the long term.