Unit Linked Insurance Plans are a form of financial instrument that combines insurance and investing components. ULIPs offer policyholders both life insurance and an investment opportunity in the form of stock, debt, or a combination of the two.
ULIP plays an important role in estate planning, which entails organizing one's assets and establishing plans for their distribution in the event of death or incapacity.
This article will look at what ULIPs and, how they can help with estate planning, the best investment strategies to use when using ULIPs for estate planning, the benefits of investing in ULIPs for estate planning, how to choose the best ULIP plan for your estate planning needs, and the tax benefits of investing in ULIPs.
What exactly are ULIPs?
ULIPs, as previously stated, are investment products that offer both insurance and investing characteristics. A portion of the premium paid for ULIPs is used to provide life insurance, while the remainder is invested in ULIP's numerous investment alternatives.
The policyholder may select the investment choice that best meets their financial objectives, risk tolerance, and investment horizon. ULIPs provide a wide range of investment alternatives, including equity funds, debt funds, balanced funds, and hybrid funds. The performance of the underlying investments determines the returns on ULIPs.
How do ULIPs aid with estate planning?
Estate planning is organising one's assets and making plans for their distribution in the event of death or incapacity.
ULIPs can help with estate planning by offering both life insurance and an investment opportunity. In the event of the policyholder's untimely death, the policy's nominees can receive either the sum promised or the fund value, whichever is greater. This can give financial stability to the policyholder's family in the event of their untimely death.
Furthermore, ULIPs can be used to create and transfer wealth. The policyholder can acquire money over time by investing in ULIPs. These funds can be used for a variety of financial objectives, including child education, retirement preparation, and legacy planning.
Investment Strategies for Estate Planning with ULIPs
It is critical to have a clear investment strategy in place when utilising ULIPs for estate planning.
Here are some investment ideas for maximising the benefits of ULIPs for estate planning:
Begin Early: The earlier you begin investing in ULIPs, the longer your investment horizon, which can help maximise your gains. Starting early can also aid in the development of a big corpus over time.
Choose the Right Investment Choice: It is critical to select an investment choice that is compatible with your financial objectives, risk tolerance, and investment horizon. Over a longer investing horizon, equity funds can provide larger returns, but debt funds can provide consistent returns with fewer risks.
Regular Monitoring: It is critical to check your ULIP investments on a regular basis to ensure that they fit with your financial goals and investment objectives. It is also critical to assess your investment portfolio on a regular basis and make changes based on market circumstances and your financial objectives.
Benefits of Buying ULIPs for Estate Planning
ULIPs provide both life insurance and investment options, making them an adaptable investment instrument for estate planning.
The following are some advantages of investing in ULIPs for estate planning:
- Wealth Creation: ULIPs provide the chance to accumulate money over time, which may be utilised to satisfy a variety of financial objectives, including retirement planning and legacy planning. Flexible investment options, premium payment frequency, and moving between investment alternatives are all available with ULIPs.
- Tax Advantages: ULIPs provide tax advantages under Section 80C of the Income Tax Act of 1961 on the premium paid for the policy, as well as Section 10(10D) on the maturity profits or death benefit.
- Nomination: ULIPs include the option of nomination, which guarantees that the insurance funds are allocated according to the policyholder's desires in the event of their untimely death.
How can you select the finest ULIP Plan for your Estate Planning requirements?
It might be difficult to select the right ULIP plan for your estate planning needs. Here are some points to consider when selecting a ULIP plan for estate planning:
Amount of Coverage: The coverage amount should be sufficient to fulfill your family's financial demands in the event of your untimely death. It should be determined based on your income, liabilities, and financial objectives.
Investment alternatives: ULIPs provide a wide range of investment alternatives, including equities, debt, balanced, and hybrid funds. Choose the investment choice that best fits your financial objectives, risk tolerance, and investment horizon.
Fund Performance: The ULIP fund's previous performance might give you a sense of its potential to generate profits. Past performance, however, is not a guarantee of future results, and you should also evaluate the fund's investing philosophy and portfolio allocation.
Charges: ULIPs have a premium allocation charge, a fund administration charge, a mortality charge, and a surrender charge. You should select a plan with a fair pricing structure that provides good value for money.
Flexibility: ULIPs allow for premium payment frequency changes, moving between investment alternatives, partial withdrawals, and top-ups. Choose a strategy that allows you to adapt to shifting financial circumstances.
The Tax Advantages of Investing in ULIPs
ULIPs provide tax advantages under Sections 80C and 10(10D) of the Income Tax Act of 1961. The premium paid for the ULIP policy is tax deductible up to Rs. 1.5 lakh under Section 80C. The ULIP policy's maturity proceeds or death benefit are tax-free under Section 10(10D) of the Income Tax Act of 1961.
Wrapping it Up:
ULIPs provide estate planning with both life insurance and investment possibilities. Choose the best plan with a defined investment strategy that matches your financial objectives. ULIPs provide advantages such as dual benefits, wealth building, flexibility, tax advantages, and the ability to choose beneficiaries. Consider coverage, investment alternatives, fund performance, fees, and flexibility. Overall, ULIPs are an important estate planning instrument for creating and transferring wealth while also providing financial protection.
Term insurance is a type of life insurance that provides coverage for a specific period of time or years.
This type of life insurance provides financial protection to the nominee in case policyholder dies during the policy term.
Term Insurance plans provide high life cover at lower premiums.
For eg: Premium for ₹ 1 Cr Term Insurance cover could be as low as ₹ 490** p.m.
These fixed premiums can be paid at once or at regular intervals for the entire policy term or for a limited period.
Premium amount varies basis the type of the premium payment method opted by the buyer.
There are many insurance companies in the market, with each offering a wide range of policies to choose from.
It is undoubtedly a big task to select the best term plan from this extensive list, but you must invest time and effort in the search as it guarantees peace of mind for you and a stress-free future for your family.
Here is the list of 11 best term insurance plans in India in 2021 you can choose from.
Check term insurance plan features, eligibility criteria & claim settlement ratio of insurance companies.
