A ULIP plan is a dual-benefit financial product, which is a combination of investment and insurance under a single integrated plan. The primary idea behind the formulation of a ULIP plan is as follows:

• To offer financial protection to your loved ones in your absence.
• To allow your active participation in the capital markets.

A ULIP plan is an effective risk management tool for various reasons. Typically, a ULIP plan can let you park your money based on your risk tolerance and investment goals. Hence, let’s go through the top five reasons mentioned below that help us to understand how a ULIP investment can act as an effective risk management tool:

1. It can protect you from market volatility

A ULIP insurance is also a market-linked financial product. Although it is linked to market performance, you do not have to worry about market volatility. When you choose a ULIP policy, you can ensure the protection of your invested capital in the following ways:

• You can make a choice between equity funds and debt funds based on your risk appetite. For instance, you can choose an equity fund investment if you have a high-risk appetite and vice versa.
• You can avail the switching feature, which can allow you to shift between equity funds and debt funds. For instance, when the market is down, switch to debt funds. After the market bounces back, you can opt for equity funds again.

2. It can be available on the online website

Earlier, purchasing a ULIP plan offline was a cumbersome process. Due to the long process, many of you might have stayed away from a ULIP investment. To make the ULIP purchase easy and hassle-free, many insurance companies have availed a ULIP plan on their respective online portals. As a policyholder, you can buy a ULIP plan online with these four steps given below in a single click:

• Choose a ULIP plan based on your risk appetite, investment goals, and financial requirements.
• Make the online payment using a debit or a credit card.
• Purchase the final ULIP plan.
• Take a print of the policy document mailed to you by your insurer after the purchase.

3. It can be a long term investment

A ULIP policy is a long-term investment solution. Ideally, every ULIP policy has a lock-in period of five years. If you stay invested in a ULIP policy for a longer duration, you can develop a disciplined financial habit as well as accumulate a substantial corpus. In addition to this, staying invested until the completion of the lock-in period can let you achieve high returns. As a policyholder, you should invest in a ULIP policy at a young age since you can have an ample of time in your hands to build a larger corpus. For instance, if you invest Rs. 5,000 every month, your corpus can grow up to Rs. 75 Lakhs by the time you get old.

4. It can provide tax saving benefits

A ULIP plan is a unique financial product, which falls under the Exempt-Exempt-Exempt (EEE) category. Under a ULIP plan, you can claim deductions on the premium and the maturity proceeds in accordance with Section 80C and Section 10(10D) of the Income Tax Act, 1961. While the premiums can be paid in return for the coverage, maturity proceeds can be provided when your ULIP policy reaches the maturity date.

The applicable tax benefits are as follows:

• Premium

You can be eligible to claim a deduction up to Rs. 1,50,000 on your taxable income as per Section 80C.

• Maturity proceeds

The maturity pay-out given by your insurer can be tax-free according to Section 10(10D).

As highlighted above, A ULIP investment can effectively control the risks of the market while you get to receive returns based on your risk tolerance. However, you should keep a tab on the performance of the market and your selected fund to stay updated. If you are unable to check how your funds are performing, consulting a financial expert is a good idea.