The COVID-19 pandemic has reiterated the need for good financial planning. With pay cuts and job losses getting increasingly common, the importance of having a financial backup for a rainy day has become clearer. However, the fear of market volatility and risks stops many potential investors from parking their money in the right instruments. An effective way to deal with this, especially during such uncertain times, is to look for an investment option that offers the best of both equity and debt funds. This ensures a moderate amount of risk while allowing stable returns.
A ULIP plan or Unit-Linked Insurance Plan is a product that offers this benefit while also providing life insurance coverage. Here’s why a ULIP plan can be a great investment option during the COVID-19 pandemic.
You must be wondering how do ULIPs manage both investment and insurance at once. The insurer does so by dividing the premium into two – one is to be used to build the life insurance cover and the other is to be invested into the market instruments of your choice. As mentioned earlier, you can choose between equity funds and debt funds as per your risk appetite. One can also opt for a balanced portfolio if they have a moderate risk appetite. The higher the risk, the more the returns from the ULIP plans. However, in times of uncertainty when the market undergoes more fluctuations than normal, one must carefully review the kind of risks they can take.
Why ULIPs are the right choice during COVID-19
ULIPs allow the investor to switch funds
When you choose ULIPs, not only do you get a variety of fund options but also get the option to switch between them as per your needs. The feature of fund switching permits the investor to transfer their funds from equity funds to debt and vice versa as per their understanding of the market conditions. If the returns from your debt funds are not meeting your criteria, you can reach out to your insurer, consult with them, and get the entire funds (or a portion of it) to equity funds. Thus, you can choose between different types of ULIP funds without incurring any extra charges.
This particular feature helps you avoid any potential losses that you may have incurred by remaining in a badly performing fund option.
ULIPs offer life insurance + additional coverage
In such uncertain times, when there is no saying when an unfortunate event will occur, it is important to have a life insurance policy. This is especially vital if you are the earning member of your family. A life insurance policy ensures that your loved ones have a financial backup that they can rely on for their daily expenses and liabilities in your absence. With a ULIP plan, you can receive this assurance. Along with the basic life coverage, you can also opt for riders that offer additional help.
For instance, the waiver of premium waives off all the future premiums of the policy if the policyholder passes away, or suffers an accidental permanent disability, among other events.
ULIPs are ideal for short-term and long-term goals
Even though security from the current times may be your short-term goal, you may have several long-term goals as well. This may include buying a house or a four-wheeler, getting your children married or sending them abroad for higher education, and so on. The returns from ULIP plans can help you achieve these goals as well.
With a mandatory lock-in period of five years, ULIPs also offer the investor to set up a partial withdrawal system. These partial withdrawals help you meet your regular needs, while the accumulated returns aim to fulfil your long-term objectives.
ULIP tax benefits are substantial
Saving on tax is also a prerogative for many in times of financial uncertainties. Therefore, one must invest in options such as ULIPs to achieve their tax-saving goals. With the premium paid for the ULIP policy, one can claim tax deductions up to Rs 1.5 lakhs under the laws mentioned in Section 80C of the Income Tax Act, 1961.
Besides this benefit, one also enjoys tax-free pay-outs during maturity and surrender, given that the conditions are met. The beneficiaries also receive a tax-free death benefit pay-out when the policyholder passes away.
Apart from these reasons, investing in different types of ULIP plans also gives you peace of mind. The insurance coverage secures your loved ones’ future while the wealth creation aspect secures yours.