Investors who invest with a long-term horizon have always gained better returns than those with a short-term perspective. If you plan to invest in ULIP, it is advisable to stay invested for ten to 15 years to avail of significant returns. If you are wondering what is ULIP plan, then read ahead.
Unit-Linked Insurance Plan (ULIP) is a type of life insurance policy, but it also boasts an investment feature. It enables you to invest in equity or debt fund as per your preference and risk-taking ability. ULIP plan returns can be significantly higher than other investment options if you invest wisely, making it one of the most popular investment instruments.
How long-term investors can benefit from ULIP
Listed below are five essential aspects of ULIP plans that reward investors with a long-term horizon.
- Partial withdrawal facility
ULIP has a mandatory five-year lock-in duration. After the completion of this period, you can withdraw funds partially to meet the crucial milestones of your life. If you remain invested for a longer duration, your wealth will grow substantially, allowing you to accumulate a considerable corpus. You can use the corpus to buy a new house, fund your children’s education, or finance their wedding, among other life goals.
- Loyalty feature
Your insurer credits the ULIP account with loyalty additions after every few years. However, to be eligible for this benefit, you must have a good track record when it comes to timely payments of premiums. Moreover, you need to complete the minimum lock-in tenure of five years and remain invested even after this term. You receive loyalty additions for being a patient and disciplined investor.
- Wealth boosters
These help you to increase the value of your portfolio in the long run. For instance, loyalty additions are wealth boosters that increase the value of a particular portfolio due to the extra units credited to your account. The wealth boosters in top-performing ULIP funds enable you to accumulate a vast corpus right from the commencement of the 11th year of your policy.
- Premiums returned
The performance of the capital market and the current value of your portfolio does not matter, as ULIP safeguards your family’s financial goals. If you stay invested for a longer duration, the premiums that you pay towards the policy will eventually exceed the sum assured. In case of any untoward event, the insurer will pay the fund value or 105% of the total premium paid to date, whichever amount is higher.
- Portfolio management to safeguard ULIP returns
Based on your risk-bearing capacity, you may choose from various portfolio management plans offered by ULIPs to protect your capital and returns. For example, top-performing ULIP funds offer different portfolio management options, which include:
- Systematic transfer
- Return protection
- Auto-fund rebalancing
- Flexible switching
The fundamental role of the first-three portfolio management strategies is to help you maximize the returns on investment. The fourth strategy helps you to protect the accumulated earnings from your investments in equity or debt fund.
ULIP is structured in such a manner that it will reward you if you remain invested for the long term. Besides this, ULIP can grow your money exponentially and shield your investment efficiently with the help of flexible switching. For instance, you can move the amount earned from the equity market to debt fund when you are about to reach a desired financial goal or when the policy is nearing maturity.
ULIP is an excellent financial instrument, which offers dual advantages of investment and insurance under a single policy. Besides this, it provides tax benefits, which makes it a lucrative investment option. So, there are many benefits of investing in a long-term ULIP. Therefore, it is advisable to start investing at an early age to grow your wealth and earn a high corpus in the long run.