Once you have a child, your entire life revolves around them and this includes your financial aspects, too. You will take your child’s present and future into consideration before making any important decision. When you are making any financial decisions, think about their impact on your child. Choosing life insurance is also one such decision that directly affects your loved ones, especially your child. With several types of life insurance, it’s difficult to narrow your choices. If you are looking for life insurance and an opportunity for investment in a single plan, you can simply choose a Unit Linked Insurance Plan (ULIP).
Offers dual benefits
ULIP, unlike pure life insurance, is a type of life insurance that also offers an investment component. When you pay premiums for your ULIP, they are partly used for providing you with a life cover and partly invested in funds of your choice. When you buy a ULIP, your child’s future is secure with life insurance and also returns on investments. You will get a maturity amount when your plan matures. The amount comprises both the investments you made and the returns you earned on them. If in an unfortunate circumstance you lose your life, the life insurance aspect of your plan will provide you with financial cover. Ensure that the financial cover suffices to take care of your child’s needs. To ensure that the investment and the life insurance components are sufficient for your child’s future, you can use a ULIP calculator to get an estimate of your needs.
Allows free partial withdrawals
With a child, there are several urgent and un-called expenses that come up. One of the unique ULIP benefits is that you get free partial withdrawals. Free partial withdrawals ensure that you have funds you can access anytime you want. Whereas other investment products either require you to pay charges or dissolve your instrument completely. The free partial withdrawal can be availed only after the lock-in period, which is of five years.
Potential for providing high returns
Traditional investments, like fixed deposits (FDs) and recurring deposits (RDs) provide nominal returns. The returns are so low that they often cannot beat rising inflation. Investors have sought new investment options like ULIPs instead of getting high returns. ULIP allows several investments into funds which you can choose based on your risk appetite. While planning your child’s future, select funds that align with your goal accordingly. The funds you choose from can be broadly divided into three types: equity funds, balanced funds, and debt funds. Equity funds are the ones that have high returns but come at high risk. While debt funds come with low risk and have low returns to offer compared to equity. If you have a moderate risk appetite, you can simply invest in a balanced fund. In such funds, you get moderate returns as your money is invested in both debt and equity funds. You can use a ULIP calculator to estimate your returns on your chosen allocation.
When you invest in financial investment, your asset allocation is fixed from the time you invested till your investment matures. For investments that are market-linked, fixed allocation can lead to a loss of returns. If you have invested in a ULIP, your investments are much more flexible. It allows you to switch your fund allocation anytime you want. Your ULIP benefits are multiplied with this feature as it allows you to make the most of market fluctuations. It allows you to change your fund allocation over the years based on the risk appetite and the overall performance of the market.
Several tax benefits
When you invest, keeping in mind your child’s future, the tax implication of investment is a major factor to consider. When you buy a ULIP, there are tax benefits that you get on several levels. You get deductions on the premiums you pay for your plan under Section 80C of the Income Tax Act. The maturity amount is also subjected to tax exemptions depending on your asset allocation. The life cover that the nominee receives in case of your demise is also completely exempt from taxes under Section 10 (10D) of the Income Tax Act.