How to Save Big with ULIPs?

What is ULIP

A Unit Linked Insurance Plan (ULIP) is a combination of insurance and investment. With a Unit Linked life insurance plan, you can expect to create wealth along with a life cover where your insurance company puts a part of your investment in life insurance. The rest goes in equity or debt or both, based on your preference and your long-term goals. Your long term goals can be planning for retirement, your children’s education or marriage or any other important life event for which you wish to save money. 

How Does ULIP Work?

  1. When you pay a premium for your ULIP plan, the insurance company will invest a portion of the money in shares or bonds, and the rest of the money is used to provide insurance cover to you. 
  2. Fund managers from the insurance company will take care of the investment aspect of your ULIP policy, thereby saving you from the hassle of tracking your investments. 
  3. ULIPs also allow you to switch between equity and debt funds, based on your risk appetite and market knowledge. 
  4. The advantage of switching between investments makes ULIP a popular type of investment instrument.

How To Save Big With ULIPs? 

1. Buy ULIPs Online 

When you buy a ULIP plan online, you may be able to save up to 20% more, as compared to purchasing a ULIP policy from an agent. Also, another advantage of purchasing a ULIP plan online is that you can compare various options available on an online portal and then choose the best ULIP plan suitable for you. 

2. Opt For Low Cost and High Return

Playing the investment market is difficult because it is unpredictable. When an individual decides to invest in ULIP, he expects to keep the money in the policy, so that it grows. Try not to buy a low-cost policy as it will also offer low returns. You want to opt for a ULIP policy that fits your lifestyle perfectly and also has a notable history of giving high returns. 

If you are in your 20s or 30s, you stand a better chance of getting more returns. If you buy a ULIP policy when you are in your 50s, you may have to pay a higher mortality charge, among other ULIP charges. Hence, it is advisable to purchase your ULIP policy when you are younger.  3. Plan For Long Term

It would be unwise to expect getting rich quickly with a ULIP plan. A successful ULIP requires patience, just like you would do in the case of mutual funds. Many people may not see a respectable return in ULIP for 12-15 years. As you wait for these 12-15 years, you must expect the investment market to fluctuate. Anticipate market volatility and let your investment do the job. 

In the meantime, you can always make changes to your ULIP. If you think you do not see any significant growth in equity, you can move on and try your hand at debt funds or vice versa. This opportunity can help you to grow your money by maximising your investment.

4. Tax-Saving Tips

Before investing in a ULIP plan, check how much you can afford and how it will help you to reduce your taxes. You can get a tax deduction up to Rs 1.5 lakhs for the total premium paid for your ULIP plan under Section 80C of the Indian Income Tax Act, 1961. The amount you save with ULIP funds and the tax benefits for ULIP are so strong that some experts recommend buying a ULIP at the highest premium you can afford. Conclusion

ULIP, as a mode of investment, is an excellent choice as it allows you to leverage the benefits of both insurance and investment. As part of the investment is spread across the stock market, you can expect to gain higher returns. However, it also means your investments are subject to market risk, and hence it would be sensible to invest in ULIP only after thorough research on various ULIP policies.