ULIPs remain a viable option for long-term planners & compulsive spenders, and has gained massive popularity by offering policyholders an opportunity to invest in the market as per their financial priorities and risk appetite. ULIPs enable the policyholders to align their investment with their long-term goals by providing a wide variety of funds to invest. Investors can achieve their objective of creating wealth by selecting equity or debt-based funds (or both) based on their long-term goals along with a life insurance cover that helps them achieve security and safety of their investment. Anil Kumar Singh, Chief Actuarial Officer, Aditya Birla Sun Life Insurance Company Limited (ABSLI), shares his knowledge on ULIPs and explains the reasons to back your ULIP investments.
“The long-term nature of ULIPs allows it to absorb various front-loaded costs and attain robust returns through sustained & compounded returns. However, many policyholders discontinue their policies in the middle because they feel burdened by huge lump-sum premiums. To encourage investors who prefer a staggered mode of payment to maintain liquidity, insurance companies offer the option to opt for monthly mode w.r.t to premium payments. This allows the policyholders to leverage their ULIP investment by giving it the SIP edge and will fix their liquidity issues which are associated with the yearly payments mode of renewal,” Anil Kumar Singh said.
Advantages of a ULIP plan
“A ULIP policy comes with several tax advantages. The premiums paid towards the plan are tax-deductible under Section 80(C), and the death benefit in the plan is tax-free under Section 10(10D). Tax benefits bolster savings, resulting in increased disposable income which can be used for other investments or expenses,” Singh said.
“Your ULIP investments not only allow you to earn financial growth and achieve your personal goals, but they also make sure that your family is protected in case of your absence. The death benefit provides policyholders a financial cushion in the event of an emergency, allowing them to continue living a life of dignity and luxury,” he added.
Flexibility to balance the portfolio between equity & debt through convenience switch & re-direction option
“A ULIP gives you the choice of choosing the fund into which you want to invest. For example, if you have a high-risk appetite, you can invest in equity funds. The advantage of this option is that it guarantees high returns at a higher level of risk. This is the type of investment most people take when they are young, have lots of time ahead of them, and have a lot of resources available to them,” he suggested.
“If you prefer lower risk, you can consider debt funds which reduces your portfolio’s risk quotient and may be recommended when you are closer to your investment goal.”
Consistent superior returns
“ULIPs offer additional returns in the form of rewards, wealth boosters, guaranteed additions, etc. which get added to your account over time. These bonuses can dramatically increase the value of your fund if you stay invested for a long time,” he explained.
“To preserve liquidity, policyholders have the option to opt for monthly mode w.r.t premium payment. Hence, there’s no need to pay a significant amount in one go. It is likely to be a slightly more expensive proposition because of the modal loading, but the benefits it can yield in the long term far outweighs the expense,” he said.
Clearing myths around ULIPs –
ULIPs don’t provide returns over the long term –
“Just like any other financial product, risk and return are directly proportional in ULIPs as well. A cautious approach while selecting the funds for your ULIPs may provide substantial returns from the market, provided you have stayed invested for the long term,” he explained.
ULIPs are costly –
“Because of the high fund management and premium allocation charges, many people are reluctant to invest in ULIPs and perceive it as a costly investment instrument. However, IRDAI has addressed this issue and now it has brought down the annual charges from 6-10% to 3% for the first 10 years of holding and 2.25% for more than 10 years of holding. Now low-cost ULIPs have charged much lower than before and are affordable to all,” he added.
“In this uncertain and dynamic scenario, both protection and investment are important. That’s where ULIPs, or Unit Linked Insurance Plans, come into the picture. Having a combination of insurance and investment, a ULIP can help you secure your and your family’s financial life goals. Also, ULIPs usually inculcates a forced sense of discipline into those investors who are best suited for this product. Through ULIPs the policyholders can attain robust and balanced return, ensuring there’s no trade-off between long-term goals and objectives & short-term needs and desires. Therefore, it is advisable that policyholders should hold onto their investments by choosing the monthly renewal payment option if they feel burdened by single payment method,” he concluded.
(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)