Should you put your eggs in one bucket? Or, should you choose to keep your eggs in more than just one bucket? This question strikes our mind whenever a crucial financial decision about investment needs to be made. Whether it satisfies your financial goals, be it long or short term ones, it is the most important thing to look for before purchasing a life insurance policy.
If you are looking specifically for risk cover, the safest and cheapest solution for you is to buy term insurance. So, what is a term insurance plan?
Term insurance is entirely a death benefit plan, guaranteeing your family’s financial protection in the event of your untimely demise. It protects your loved ones without any adjustments in the premium for the policy’s duration. The tenure of the procedure can be 5 to 40 years, and if you are not able to pay the premium for any reason, the cover will end.
The catch here is that this life insurance policy can only provide benefits if the policyholder experiences an unfortunate accident that results in the death of the insured person. If all is good and the policyholder lasts the duration, the policy may expire or extended depending on the situation. This type of life insurance policy will provide your family with more financial security. It is not, therefore, an investment plan, but purely an insurance plan.
On the other hand, ULIPs offer insurance and investment in a mix. The cash you pay as a premium is partially used for providing life cover and partly for investments. It gives a cumulative amount at the end of the maturity period. While it provides the value of protection, been said that, in the case of the policyholder’s demise during the tenure of the policy, the nominee earns various benefits.
As we have discussed both. Let’s get to know what is life Insurance and which life insurance policy is ideal for you. Which one to choose? Or choose both? Let’s answer these questions.
- Dual Advantage
While the life cover and tax-saving are fulfilled by life insurance policies like term insurance plans, they do not give any return. On the other hand, Besides the tax gain of up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961, ULIPs may be instrumental for long-term objectives. It provides an assured minimum amount depending on the annual premium for the investors.
- Switch Option Availability
Unit Linked Insurance Policies provide an investment cum security option that is professionally operated and provide an entrance to an ever-attractive equity market. ULIPs give you an array of fund options ranging from 100 percent debt to 100 percent equity to invest money.
These policies provide versatility and independence to rebalance your portfolio by changing the assets from one fund to another within one plan. You don’t have to keep track of businesses that the fund invests in, unlike bonds or any other life insurance policy. To reap long-term benefits, you have to select the scheme, adjust the fund allocation at any time during the term, and run it until maturity.
- Investment Objective
A life insurance policy is purchased with a long-term financial objective in mind, so it is often recommended to proceed with the savings without compromising to achieve these goals. A ULIP plan has a minimum lock-in period of 5 years. However, the investor can withdraw from the policy in the event of any financial requirements post the lock-in period.
Usually, investors are encouraged to invest in ULIPs to promote disciplined savings and are not advised to withdraw the amount till maturity.
- Return On Investment
Because of their equity links, ULIPs can gain higher returns than any other insurance product. They invest the money paid by you in different assets through various funds. These tax-saving funds have traditionally generated double-digit returns, but in the case of a one-time investment, you need to look out for a new fund every year.
For ULIPs, tax benefits take care of the renewals. Often, tax-saving fixed deposits (FDs) come with a five-year lock-in term. But, as per your income bracket, the returns are added to the earnings and are taxable. But with ULIPs, your returns on maturity are not taxable.
If you are looking for the best life insurance plans, you should consider ULIPs and Term plans both. But like every savings or insurance instrument, ULIPs and term plans have their pros and cons. Identifying and opting for a life insurance plan that gives you the maximum value based on your investment objectives, horizon, and risk appetite is critical.
Due to the variety of funds offered, ULIPs can be the perfect wealth-creating vehicles for achieving long term goals. And for those who want to start young, they are perfect for riding on the equity advantage. Before you buy, learn and collect a great deal of knowledge about these products, and don’t forget to go through all the conditions.