What should you do with the ULIP funds that you have?
When it comes to investments, you can broadly divide them into two categories — long-term and short-term. These investments have unique features that can aid you in reaching your life goals. If your goal is to accumulate a corpus over time, then long-term investments would work wonders for you.
In case of long-term investments, you will have to make sure that you stay invested for at least three years. If you take into consideration, on average, people hold their investments for a period of five to ten years. If you want to enjoy the power of compounding, then you can do so by staying invested in the market for more than ten years.
When it comes to ULIP plans, even though they come with a lock-in period of five years, people make sure to stay invested for ten years, if not for the entire term of their policy. ULIPs are beneficial as they are a hybrid type of life insurance policy. They offer a combination of both life insurance and investment.
Do ULIPs get the perks of compounding?
Yes, with ULIPs, just like other investment products, investors can enjoy the benefits of compounding. Since all the ULIP plans come with a lock-in period of five years, your accumulated funds will earn certain compound interest for the first five years. However, don’t withdraw the funds. You can choose to stay invested for a long time to gain the benefits of compounding.
What are the overall benefits of staying invested for the long term?
Certain benefits of a ULIP plan are term-specific. This means you will only be able to enjoy those perks if you choose to stay invested for the long term without withdrawing your funds.
1. Loyalty additions
If you stay invested for the long term, then you will get this bonus. Think of this as a reward from your insurance company for staying invested with them for a long time.
a) Extra units are added to your fund after every 5th year for the tenure of your premium payment term.
b) Loyalty additions are based on your average fund value for the past 60 months. A percentage of this value will be added to your fund as a reward.
2. Wealth Boosters
Wealth boosters grow your fund value by adding more units without additional fees or charges. They are added after ten years. The wealth booster is also based on the average value of your fund for the last 60 months.
Why should you choose to continue with your old ULIPs?
While bonuses are one thing, there are various reasons why you should stay invested in your old ULIPs. Take a look:
1. Low mortality charge.
The mortality charge is basically the amount you pay for your insurance coverage. These charges are subtracted from your fund’s value. Mortality charges increase with your age. So, if you go for a new plan, then you will have to pay higher mortality charges overall.
2. Higher Fund Value
In ULIPs, when you invest in different assets, your fund’s value can increase in the long term. Hence, the longer you hold your funds, the risk gets mitigated over time, plus the impact of fluctuations is negated, and you earn more wealth over time.
3. Tax-Exemption
The best part about ULIP is that it is exempted from taxes. Be it the premiums you pay, the death benefit, and the maturity benefit, all are tax exempted under Section 80C of the Income Tax Act.
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