Investment and insurance are two broad concepts of the financial sector. Since they are different from one another, many of you might opt for separate products to meet your investment and insurance requirements. Rather than purchasing individual products for investment and insurance, don’t you think it would be convenient to buy one financial product that can offer the best of both worlds under a single roof? A Unit Linked Insurance Plan (ULIP) can be a combination of investment and insurance that can be explained in detail below:

What is ULIP meaning?

A ULIP plan is a dual-benefit financial product that works on the two main fundamentals of the following:

1. Insurance

The primary objective of the insurance component under a ULIP policy can be to offer financial protection to your loved ones in your absence. Due to the aim of financial security, a ULIP policy can offer a financial payout called death benefit to your whole family after your demise. As the nominees, your family members can obtain the death benefit based on their convenience i.e. either monthly or annually.

Since a ULIP policy provides life cover, you should pay the premium regularly within the selected duration. Typically, a ULIP policy can allow you to pay the premium based on your financial condition and preference. As a policyholder, a ULIP policy can allow you to choose the following premium payment mode:

• Quarterly
• Monthly
• Half-yearly
• Annually

When you select the premium payment mode, see to it that you make the payment of the premium amount on time. If you are unable to pay the premium amount on time, your insurer can provide you with a grace period of 30 days. Failure to pay the premium during the grace period can lead to the lapse of your ULIP policy.

The ULIP insurance can provide you with tax benefits by Section 80C and Section 10(10D) of the Income Tax Act, 1961. Under a ULIP tax benefits be can applied on the following:

• Premium

As per Section 80C, you can claim a deduction of Rs. 1.5 Lakh on your taxable income.

• Maturity proceeds

The amount received after the maturity period can be tax free in accordance with Section 10(10D).

2. Investment

The other half of a ULIP policy can be contributed towards investments. A ULIP policy is a market-linked investment product that can allow you to actively participate in the capital markets. When you invest in a ULIP policy, you can choose between the following types of funds mentioned below:

• Equity Funds

Equity funds can be a risky investment option since it is linked directly to the market. Hence, the generated returns can be based on the performance of the market. When the market is in good condition, you can receive relatively high returns and vice versa.

• Debt Funds

Unlike equity funds, the debt funds might not provide you with high returns. Although it offers low returns, it can be a safer investment option due to zero involvement of market risks. A debt investment can be suitable for risk-averse investors. Ideally, you should invest in debt funds when your risk appetite decreases due to the rise in your financial responsibilities and dependents.

Although a ULIP policy is a market-linked product, it can let you protect your invested capital from market volatility. A ULIP policy provides you with a switching feature that can allow you to move your assets from equity funds to debt funds during fluctuations. When the market is low, you can park your money under debt funds. After the market bounces back, you should shift your invested capital to equity funds to obtain relatively high returns.

To sum up, a ULIP plan can allow you to make the most of investment and insurance under a single roof. To reap the maximum ULIP benefits, invest in a ULIP policy at a young age. Moreover, see to it that you use a ULIP plan calculator to determine that premium to ensure that you can afford the ULIP policy. On doing so, you can continue to receive the ULIP benefits without the fear of the lapse of the policy.