Why ULIP is One of the Best Options for Long-term Wealth Creation


Long-term wealth creation is a must for ensuring financial stability in old age or after retirement and fulfilling long-term goals like buying a home. Many financial instruments like mutual funds help investors in achieving their long-term goals through investment in equities or debt or other financial instruments. But one instrument that scores over all other options is a ULIP policy or Unit Linked Insurance Plan that includes an insurance cover along with an investment option. This product offered by insurance companies involves the segregation of the premium paid by the policyholders into two, with one being used for the insurance cover and the other for investment in financial instruments.

Tips for Long-term Wealth Creation

  • Start Early– The key to long-term wealth creation is starting early and investing in a disciplined manner to achieve the set financial goals. An early start helps investors reach their goals quickly while distributing the burden evenly over their working years. Late starters have to work harder and save more to create wealth. An early start also helps an investor to benefit from the compounding effect and reach financial targets early.
  • Identify your goals and plan and invest accordingly. Quantification of goals helps investors have a clear idea about how much funds they need and what kind of returns to look at while investing.
  • Choosing the right instrument.For investment, it is essential to choose the right instrument for achieving the set goals intime. Investors should identify their financial goals and risk appetite before finalising the instrument and plan in which to invest.
  • Investing for Long-Term- Long-term wealth creation requires investors to be disciplined and stay invested for a longer duration. Short-term investments may generate good returns but are highly risky too.

ULIPs: Offering Insurance Cover as Well as Investment

While several investment options can help investors achieve their goal of creating long-term wealth, a ULIP is the only option that comes with other benefits like a life insurance cover and saving tax. Several types of ULIP plans are available for the benefit of investors with different goals and risk appetites. These plans are offered by insurance companies with the primary objective of offering a life insurance cover plus investment option for wealth creation. Many insurance providers also offer added options like accident cover or critical illness or disability cover to provide additional protection. Some features of ULIPs that make them highly suitable for long-term wealth creation are:

  1. Lock-In Period-The ULIPs come with a lock-in period of five years and this ensures that you cannot take out your funds or surrender your policy before that period. This feature helps an investor save in a disciplined manner and pay his premiums regularly.
  2. Different Investment Options– ULIP plans allow investors to choose the investment option in which they wish to put in their money and earn returns. The choice between, equity or debt or a combination, depends on the goal and the riskappetite of each investor. These plans allow investors to have a diversified portfolio without the need to carry out extensive research and analysis.
  3. Flexibility to Switch– Another feature that makes ULIP a highly suitable option for long-term wealth creation is that it allows investors to switch funds from one financial instrument to another during the policy period without any additional cost. The only financial tool offering such flexibility, the ULIP plans, come with various investment plans like equity, growth, income, and balanced. Investors can choose a different investment each year based on its previous performance or a change in their risk profiles.
  4. Tax Benefits– ULIPs help in wealth creation while also letting individuals enjoy the tax benefits. All premium payments towards a ULIP plan, plus the maturity amount, are exempt from Income Tax. Even the gains earned from ULIP investments are exempt from short-term or long-term capital gains tax.
  5. Option to Enhance Coverage– ULIPs allow investors to enhance their coverage by opting for add-on riders or increasing the sum assured and paying a top-up premium. A top-up facility is simpler than buying another policy. Investors can use a ULIP plan calculator to finalise the amount that they wish to invest.
  6. Death or Maturity Benefit is Unaffected by the Investment Portion- Irrespective of the performance of the investment portion of a ULIP plan, the death or the maturity benefit is paid to the policyholder or the nominee.

ULIP policies thus offer investors the dual advantage of an insurance cover and wealth creation through investment in varied instruments. Not only this, but these policies also come with tax benefits on premiums as well as maturity amounts.

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