The insurance sector has flourished on a large scale in India. Due to the growth of the insurance industry, there has been the introduction of traditional life insurance and non-traditional life insurance. While traditional life insurance is a popular section, a Unit Linked Insurance Plan (ULIP) under non-traditional life insurance can be one of the most favourite choices of a lot of investors.
Before you choose between traditional life insurance and a ULIP policy, let’s understand the meaning of what a traditional life insurance plan is and what a ULIP plan is in detail:
What are traditional life insurance plans?
Traditional life insurance plans are protection-based, which solely aim to safeguard the lives of your loved ones in your absence. Under traditional life insurance, your family can receive a death payout for their financial well-being after your demise. Moreover, you can select between the following types of traditional life insurance policies given below:
- Term insurance
Today, term insurance can be a whole insurance product, which clubs death benefits and survival benefits under a single roof for a specific duration.
- Whole-life insurance
Under whole-life insurance, you can cover your entire life up to 99-100 years from uncertainties.
- Money-back plan
After the maturity period, you can receive the investment money in return after the maturity date.
- Endowment policy
An endowment policy can be a combination of savings and investment under a single integrated policy.
A ULIP plan is a part of the non-traditional product. It is primarily made up of investment and insurance. Therefore, let’s understand these two crucial components of a ULIP policy in detail:
Under ULIP insurance, your nominees can receive a death benefit in your absence to provide them with financial support.
Under ULIP investment, you can participate in the capital markets as well as secure your invested capital from market volatility.
Traditional life insurance and a ULIP policy are different in their approach. While traditional life insurance has been a part of the market for a long time, a ULIP policy has undergone drastic changes after its introduction in the market. Apart from its dual ULIP benefits, this type of life insurance policy can be chosen over traditional insurance products due to the key aspects mentioned below:
- Flexible mode of premium
Under a ULIP policy, regular payment of premium can be a necessity. Ideally, you can choose between quarterly, monthly, half-yearly, or annually based on your convenience. As a policyholder, if you do not make the payment within the selected duration, your insurance company might provide you with 30 days. However, failure to repay the premium amount within 30 days can lead to the lapse of the term policy.
- Better returns
Since a ULIP policy is a market-linked product, you can obtain returns on investment. The ULIP returns can depend on your risk appetite and fund choice. For instance, if you choose equity funds due to a high-risk appetite, you can generate high returns.
- Tax exemptions
A ULIP policy can provide dual tax-benefits as stated under Section 80C and Section 10(10D) of the Income Tax Act, 1961. While Section 80C can allow you to claim a deduction up to Rs. 1,50,000 on your taxable income, Section 10(10D) can provide a tax-free maturity proceed to your family members.
- Long lock-in period
A ULIP policy might a lock-in period of five years. The long lock-in period can let you to build a large corpus to safeguard your future and meet your life goals.
To conclude, A ULIP policy can be a worthy investment. However, you should consider your risk tolerance, investment goals, and the financial requirements of your family before you buy a ULIP policy. Consult a financial expert since he can provide you with better guidelines that can help you understand why should I invest in ULIP now.