Savings plans with higher interest rates are always better when investing for a longer term. Because it will help you substantially increase your capital due to the power of compounding and the longer retention. Investing in insurance plans can help you save money and also have a life cover at the same time. But people often disregard insurance due to the lack of investment potential.
A solution to this dilemma is a unit linked insurance plan. ULIP has the investment potential of market securities and the life cover potential of life insurance. Read on to know exactly how they can help you save money in the long term.
Unit-Linked Insurance Plans and Their Key Features as a Savings Plan
A unit linked insurance plan is a plan that has a combined benefit of two completely different plans. They have the investment factor seen in market-dependent investment plans and life cover/tax benefits of life insurance. Thus, making them a one stop destination to obtain higher yields and tax relaxations through the same plan.
A ULIP plan invests the policyholder’s capital into bonds with variable risks and returns. So, it doesn’t have a fixed interest rate, as its returns can increase or decrease depending on the bond’s performance. But some ULIPs give a minimum limit below which the interest rate will not go for security purposes.
Life cover is the other major feature of a ULIP savings plan. The life cover helps secure the final amount a nominee gets in case of a claim due to a sad demise. It is usually seen that the life coverage of a unit linked insurance plan is always higher than that of a regular insurance plan.
Benefits of Unit Linked Insurance Plan as a Long-term Savings Plan
A unit linked insurance plan also has several other benefits, specifically due to the insurance and investment factors. Below are those benefits that make them a good option to replace any long-term savings plan.
Independence to Choose Preferred Bonds
Investing in a ULIP plan is almost similar to investing in a mutual fund due to the high returns. But the major difference is that the investor can choose which products to invest their money in. ULIP plan providers leave this decision-making part to their customers. So, a person can use their research skills and market experience in the ULIP and choose a bond or combination of bonds based on their risk appetite.
High Interest Rates
The interest rates in a ULIP are dynamic, so there is no limit to how high the interest rates can go. Some ULIP plans with high-risk bonds have provided the policyholder returns as high as 30%. But as mentioned, they come with a high-risk factor, so investing in them must only be after thoroughly understanding those risks and the past performance of the bond.
Standard Premium Amounts
Even though the returns of a unit linked insurance plan is too high, they have regular premium amounts. It makes investing in such beneficial savings plan much easier on the budget during the prolonged investment duration.
Several Tax Benefits
There are also several tax benefits in the different stages of investing in a ULIP savings plan. An investor can claim relaxations on the premium, exemptions on the life coverage, and deductions in the final returns at plan maturity. Thus, further increasing the yield from the plan every year a policyholder invests in it. However, tax benefits are in accordance to the current tax laws that are subject to change from time to time.
After learning about the benefits of the long-term investment potential of ULIP plans, you will be eager to invest in them. You can find several great ULIP savings plans from the leading insurance provider in India.