Is ULIP a good investment option to save for your Child’s Future?

ULIP a good investment

When an individual becomes a parent, their lives revolve around their children. Important decisions are now taken thinking about how they would directly affect their child. This is especially true for financial decisions. Whether it is choosing your life insurance or investment, thinking about the security of your child becomes a priority. While there are several financial instruments that meet your needs, here is why you should invest in ULIP or Unit Linked Insurance Plan for your child’s future:

ULIPs meet your dual needs

ULIP is a type of life insurance with an investment component to it. The premiums you pay for your ULIP are partially used towards insurance and partially towards investment. This ensures that your child’s future is secure through insurance and investment both. In the unfortunate circumstance where you lose your life, the life insurance component will ensure financial cover for your child. When your ULIP matures, you will get a maturity amount that comprises your investments and returns. The ULIP policy ensures that your life is secure and you earn returns on the investment part.

ULIPs offer high returns

When compared to traditional investments like fixed deposits (FDs), ULIPs offer higher returns. It allows you to invest in funds of your choice based on your risk appetite. When you are planning for your child’s future, choose funds that align with your goal accordingly. There are three choices: equity funds, debt funds, and balanced funds. Equity funds offer high returns but are of high risk. While debt funds are low-risk investments but have low returns. If you want moderate returns for moderate risk, you can simply choose a balanced fund. In a balanced fund, your money is invested in both equity funds and debt funds.

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ULIPs allow free partial withdrawals

When you have a child, there are several sudden expenses that occur. One of the major benefits of ULIP is that it allows free partial withdrawals. While other products require you to either pay charges or dissolve the instrument altogether. The lock-in period of ULIP is 5 years. After that, you can withdraw money from your ULIP anytime you want. ULIP offers free partial withdrawals after the lock-in period. This feature comes in handy whenever you need funds urgently.

ULIPs offer tax benefits on premiums

At its core, ULIP is a type of life insurance and hence, there are several tax benefits associated with it. The premiums you pay for the ULIP policy are exempt from taxes according to section 80C of the Income Tax Act. According to the section, you can avail of tax benefits of up to Rs 1.5 lakh annually. The tax benefits enable ULIP for wealth generation, which can future be used towards your child’s future.

ULIPs have tax benefits on maturity

While searching for investments with your child’s needs in mind, a major factor you need to consider is the tax implication of those investments. Apart from the ULIP premiums, the maturity amount is also exempt from taxes, being an additional reason why you should invest in ULIP. According to section 10 (10D) of the Income Tax Act, the amount received after your ULIP matures policy is exempt from taxes. Also, the death benefit received in case of the policyholder’s demise is exempt from any tax. However, the maturity sum is tax-free only when the annual premium is less than 10% of the sum assured for a ULIP bought after the 1st of April, 2012. While, if you had bought a ULIP before the 1st of April, 2012, the annual premium should be less than 20% of the sum assured.

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ULIPs offer the flexibility of investment

Most financial products are a fixed type of investment with fixed risk. However, this is one of the biggest ULIP benefits. A ULIP allows you to switch your fund allocation in order to create wealth in the long haul. Since ULIPs are directly linked to the market, the ability to switch enables an investor to make the most of the market fluctuation. Also, as your risk-bearing capacity increases or decreases with time, you can switch your fund allocation too. When you are planning your child’s financial future, the ability to switch between funds proves to be extremely beneficial.

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