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ULIP for Wealth Creation

ULIPs are a great way to invest and create wealth over the long term. They offer flexibility, tax benefits, life insurance coverage, and the potential for high returns.

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ULIP for Wealth Creation

ULIP for Wealth Creation

ULIP for Wealth Creation
July 03, 2023

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In this policy, the investment risks in the investment portfolio is borne by the policyholder

Unit-Linked Insurance Plans (ULIPs) have become a popular investment option in India. These policies offer dual benefits of investment and insurance. ULIPs can provide you with long-term returns, making them a popular choice for those looking to create wealth over a period of time. Let's better understand how you can use a ULIP for wealth creation.

ULIP for Wealth Creation

ULIPs are typically long-term investments that help you create wealth over a period of time. It is a life insurance product that provides investment avenues to build long-term wealth. The premium you pay gets divided into two parts. A small portion goes towards offering insurance coverage. The rest gets invested in various funds that you select.

ULIPs offer the flexibility to choose the investment option based on your risk appetite and financial goals. You can invest in a ULIP to meet various long-term financial goals, such as buying a house, securing retirement, or funding your child's higher education.

Types of ULIP Plans Offered for Wealth Creation

Insurance companies offer various ULIP plans for wealth creation. Let's learn more.

  • Equity Fund ULIPs

    An equity ULIP invests your premium in stocks and equity-related instruments. Investments in high-performing companies have the potential to earn higher returns in the long run. It is an ideal option for those who are willing to take risks and want to invest in the equity market.

  • Debt Fund ULIP

    A debt fund ULIP invests your premiums in fixed-income securities such as bonds and debentures. It is a low-risk investment option with stable returns. It is an ideal option for those who have a low-risk appetite and want to invest in fixed-income securities.

  • Balanced Funds ULIP

    A balanced funds ULIP invests your premiums in both equity and debt instruments. It provides a balanced approach towards wealth creation by balancing the risk-reward ratio. It is an ideal option for those who want to invest in both equity and debt instruments to create wealth.

  • Child-Focused ULIP

    Insurance companies today offered ULIPs that focus on building wealth for your child's future needs. It provides long-term investment options along with insurance coverage.

How Does ULIP Help in Wealth Creation?

ULIPs offer several benefits that help you create wealth over a period of time. Here's how ULIPs help with wealth creation:

  • Power of Compounding

    ULIPs offer the power of compounding, which reinvests the returns generated from the investment. Compounding helps you earn returns on your investment and the returns. It enables you to create wealth over a period of time, as long as you stay invested.

  • Long-term Investment

    Insurance companies designed ULIPs as long-term investment plans. When you purchase a ULIP, you stay invested for longer, which helps you earn higher returns.

  • Flexibility to Switch Funds

    ULIPs let you switch between investment options based on your risk appetite and financial goals to maximise returns based on market fluctuations.

  • Insurance Coverage

    ULIPs offer life insurance coverage with investment options, securing your family's financial future.

What Are the Benefits of ULIP for Wealth Creation?

ULIPs are a versatile investment option that helps you meet your financial goals, including wealth creation. Here are some of the benefits of choosing a ULIP for wealth creation:

  • High Return Potential

    ULIPs can provide high returns depending on their equity exposure. With a ULIP, you can invest in a mix of equity, debt, and other funds to diversify your investment and potentially earn higher returns.

  • Flexibility

    ULIPs offer a high level of investment flexibility. You can choose the investment plan that suits your risk appetite and make fund switches based on your investment strategy. Additionally, ULIPs offer partial withdrawals after the completion of the lock-in period.

  • Tax Benefits

    ULIPs offer tax benefits under Section 80C# of the Income Tax Act, which allows you to claim a deduction of up to INR. 1.5 lakhs on the premiums paid.

    Proceeds received on surrender/partial withdrawal/maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D)# i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

    In addition to the above, for policies issued on or after 1st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.

    Income from rest of the policies exceeding the mentioned limit will be chargeable as capital gains.

    The death benefit sum assured paid to beneficiaries is tax-exempt.

  • Life Insurance Coverage

    ULIPs offer life insurance coverage along with the investment component, protecting your family's finances. The life insurance coverage provides a lump sum payout to your nominee in case of your untimely demise.

  • Long-term Investment

    ULIPs are long-term investments, making them ideal for wealth creation. With a longer investment horizon, you can invest in equity funds, which offer higher returns over the long term. Additionally, ULIPs have a lock-in period of five years.

  • Wealth Transfer

    Insurance plans like ULIPs offer the option of naming a nominee who will receive the accumulated wealth in case of your demise. It ensures that your wealth transfers seamlessly to your loved ones without legal hassles.

How to Choose the Right ULIP for Wealth Creation?

Choosing the right ULIP plan can seem overwhelming. However, you must ensure that you meet your investment goals. Here are some factors to consider when choosing a ULIP for wealth creation:

  • Investment Objective

    Choose a ULIP that aligns with your investment objectives and risk appetite.

  • Fund Performance

    Look for a ULIP with a good track record of fund performance over the years.

  • Charges

    Understand the charges associated with the ULIP plan, such as premium allocation, fund management, mortality, and policy administration charges.

  • Flexibility

    Identify a ULIP plan that offers flexibility with fund switches and premium payment options.

  • Insurance Coverage

    The ULIP should offer adequate insurance coverage to protect your family's financial goals.

ULIPs can help you invest and create wealth over the long term. Before investing, choose the right plan that suits your investment goals, risk appetite, and financial objectives. Ensure you check the policy terms and conditions before investing.

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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 ULIP insurance.

We help you to make informed insurance decisions for a lifetime.

What is ULIP Plan? Full Form, Meaning, Benefits and Features

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ULIPs, or Unit Linked Insurance Plans, are insurance cum investment plans that allow you to put money into stocks, bonds, or mutual funds. Read here to know more!

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ULIPs provide various tax-saving advantages under Section 80C and Section 10(10D) of the Income Tax Act. Check out this article to understand the updated tax rules for ULIPs.

Understanding Taxations in ULIP
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Disclaimers

# The above stated views are based on the current Income-tax law and are subject to conditions specified u/s 80C and u/s 10(10D) of the Income Tax Act, 1961.

# Tax Laws are subject to change from time to time. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

The 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 or 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. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.