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How ULIPs protect your financial goals

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Mind Over Money: Tackling Financial Biases for Smarter Investments
December 19, 2024

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The investment risk of ULIP is borne by the policyholder.

How ULIPs protect your financial goals

Financial goals are the milestones that guide our lives—buying a home, funding a child’s education, or retiring comfortably. Yet, these dreams can often encounter significant roadblocks. Inflation, in particular, is a silent adversary that steadily diminishes the purchasing power of your savings. Such factors can make it harder to achieve goals which once seemed within reach.

Amid these challenges, Unit Linked Insurance Plans (ULIPs) tend to emerge as a reliable solution. Combining market-linked returns with life insurance protection, ULIPs offer a way to grow wealth while safeguarding your family’s financial future.

Dual purpose

ULIPs are designed to address two critical aspects of financial planning: wealth creation and risk protection. A part of the premium you pay is allocated toward life insurance coverage, ensuring your family’s financial security. The remaining, which can be larger portion, is invested in market-linked funds like equity, debt, or hybrid options.

What sets ULIPs apart is their adaptability. Whether you are a conservative saver or an aggressive investor, these plans allow you to switch between fund types. Such flexibility enables you to align your investment strategy with your exact financial goals and risk appetite. With the potential to create long-term wealth, ULIPs cater to a broad spectrum of aspirations, making them a preferred choice for individuals across different walks of life.

Inflation effect

Inflation: this nine-letter word might not seem alarming in the short term, but its cumulative effect over time can derail even the most carefully planned financial goals. Imagine setting aside ₹10 lakh today for your child’s higher education, only to find that the same education costs about ₹20–25 lakh fifteen years later due to an average inflation rate of 6%.

Traditional savings instruments often fail to bridge this widening gap. Fixed deposits and savings accounts may provide stability, but their returns rarely outpace inflation. This is where ULIPs shine. With a portion of your investment linked to equity markets, these plans offer the potential for higher returns, ensuring your money grows faster than inflation.

And if inflation was not enough, traditional savings avenues, whether requiring steady contributions or a one-time lump sum, rely heavily on time and continuity to achieve financial goals. However, unexpected events like early demise can leave plans incomplete. ULIPs, with their life insurance component, ensure a fail-safe mechanism—providing a sum assured that protects your loved ones and secures their future.

Why financial goals often go unmet

The road to achieving financial goals is fraught with challenges. For one, as discussed above, many people underestimate the long-term impact of inflation, leading to inadequate savings. A lack of discipline in investing regularly further exacerbates the problem, as does the reliance on low-yield instruments that fail to generate the required corpus.

Let’s say your goal is to accumulate ₹50 lakh in 20 years. You invest ₹8,500 monthly in an instrument offering about 8.5% annual returns. However, if you invest for only 5 years (₹8,500 x 12 months x 5 years = ₹5.1 lakh total invested) and stop, your investment will grow to far less than ₹50 lakh in 20 years. The lack of regular investment significantly impacts the corpus, leaving you short of your goal.

Life’s unpredictability also plays a role. Events like job losses, health crises, or the untimely demise of a breadwinner can derail plans. This leaves families struggling to meet essential expenses. In such scenarios, ULIPs offer a lifeline. By combining disciplined, goal-oriented investment with life protection, they provide a financial safety net that adapts to life’s uncertainties.

How ULIPs protect your financial goals

ULIPs are uniquely designed to safeguard your financial future in multiple ways.

1. Dual benefits: ULIPs combine market-linked investments and life insurance coverage, providing a holistic solution for financial growth and risk protection. A portion of your premium goes toward life insurance, while the larger share is invested in equity, debt, or hybrid funds. This combination helps you build wealth while securing your family’s future.

2. Flexibility to adapt: One of the standout features of ULIPs is their adaptability. You can switch between fund types—equity, debt, or hybrid—depending on your evolving financial goals or changing market conditions. For example, when you are younger and focussed on wealth creation, equity funds may offer the best growth potential. As you near your financial goals, you can switch to more stable, lower-risk funds to preserve your wealth. This flexibility ensures that your investment strategy is always aligned with your needs.

3. Partial withdrawals: ULIPs allow you to access your funds after a five-year lock-in period, providing you with liquidity for major milestones like higher education or buying a home. This ensures you can meet your life’s important financial needs without disrupting your overall investment strategy.

4. Tax benefits: ULIPs come with valuable tax benefits. You can claim deductions under Section 80C for premiums paid, while the maturity proceeds are tax-free under Section 10(10D)*, subject to conditions. These tax incentives boost your investment’s efficiency, allowing more of your money to work towards achieving your goals.

In short, ULIPs offer flexibility, protection, and tax efficiency—making them a comprehensive tool to help you stay on track with your financial aspirations.

Conclusion

In a world where inflation constantly erodes the value of money, staying ahead requires more than traditional savings strategies. ULIPs provide a comprehensive solution, blending the power of market-linked investments with the security of life insurance. By addressing the dual challenges of wealth creation and risk protection, they empower you to achieve your financial dreams with confidence.

Whether you are planning for your family’s future, securing your child’s education, or preparing for retirement, ULIPs offer the resilience needed to stay on track. You can explore HDFC Life’s range of ULIPs today, and take the first step toward a future where your financial goals are always within reach.

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ARN: ED/12/24/19050

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Here's all you should know about life insurance.

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How ULIPs protect your financial goals

How ULIPs protect your financial goals

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We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

*Tax benefits are subject to conditions under Section 10(10D) of the Income Tax Act, 1961. Tax Laws are subject to change from time to time.

Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender/withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. 

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