How ULIPs Help in Long Term Wealth Generation


Building a retirement corpus to enjoy a financially independent life is a dream for many. While many investment instruments help you to achieve this, you can opt to invest in ULIPs. Read on to know how ULIPs help in long-term wealth creation.

ULIPs or Unit Linked Insurance Plan is a unique insurance instrument that provides the benefit of life protection as well as the opportunity to invest in the money market. In ULIP, the premium you pay for the policy, a portion of it is used for life insurance and other part is invested in different funds. Investing in ULIP is one of the best investment options if you are looking for a long-term investment tool. If you have long-term goals like building a corpus to pay down payment for a home or saving for the retirement, the attractive returns of ULIPs can help you accomplish your goal. Apart from assuring financial protection for the future, ULIPs also allow an increase in wealth.

Let us look at how ULIP helps in building wealth for the long term:

Lock-in Period

ULIPs usually have a lock-in period of five years. This enables you to get into the habit of the disciplined practice of investing and saving. Since ULIP is a long-term investment instrument, investing in ULIPs helps you save for the long term. Also, unlike other pure investment schemes where you get tax benefit once, you can avail tax deduction every year till the end of the policy term. You also get the flexibility of paying the premium every month or in a lump sum annually.

Better returns

Another significant benefit of ULIP investment is that it has the potential to earn better returns than other insurance products because of its investment in equities. ULIPs invest a part of the premium you pay in different assets through different funds and historically these funds have given returns in double digits. However, this is no guarantee that it would yield high returns in the future too. You must review the performance of the fund every year if you are investing a one-time lump sum amount.

The amount you withdraw at the end of the term depends on the performance of the equity market during the term. Also, the maturity amount you receive is tax-free, making ULIP a better choice among other investment tools.

Flexibility to Switch Funds

ULIPs give you the option to switch funds during the policy term. You can choose among the equity, balanced and debt funds as per the risk appetite or change in financial goal. Generally, most ULIP plans allow you to switch funds four times in a year without any cost.

Dual Benefits

The term insurance, which is one of the most popular types of insurance that offers life protection at the most affordable premium, it does not provide any returns. The ULIPs on the other not only provide returns on your investment but also allow you to get tax-deduction up to Rs. 1.5 Lakhs under Section 80C of the Indian Income Tax Act, 1961. The tax-saving can be instrumental in long-term wealth creation.

Suitable for amateur investors

Amateur investors who invest in traditional investment instruments like fixed deposit are now slowly moving towards investing in other instruments like mutual funds and insurance policies. So, if you are considering switching your investment to a safe and decent-returns yielding instrument, ULIPs would be the best choice.

The returns earned on ULIPs are comparable to mutual funds in the long run. Not to mention, the new investment guidelines introduced by IRDAI have made ULIPs more investor-friendly than they were first introduced. The charges like premium allocation charges, administration charges and surrender charges are cut down.