ULIPs for Young Investors: A Smart Way to Build Wealth Early with Insurance

Investments are all the rage these days. The older generation cracked the code to building wealth and passed it on. Now, the young generation of investors has substantial information to invest wisely and dig out of financial crises.

One of the major concerns these days is the uncertainty of life. Ergo, apart from wealth building, you also need to secure the future of your dependents. Fortunately, with the advancements of mankind came the useful technique of investing money in both simultaneously to brighten your present and secure your family’s future in the form of ULIPs.

What is a ULIP?

A ULIP is a Unit-Linked Insurance Plan. It is a unique form of life insurance policy that provides a death benefit to your loved ones after your demise and helps you grow your wealth during your lifetime so you can enjoy the fruits of your labour.

Basically, you start by selecting the sum assured and policy tenure, much like any traditional life insurance policy. The insurer determines the premium for the plan and then adds on the ULIP benefits. Your premium rises by a specific amount that you want to invest in the market to grow your wealth and reap the returns.

The premium intended for investment is invested by the insurer based on your choices and risk appetite. You can select from equities or debt funds, wherein the former comes with bigger risks and returns, while the latter offers lower risks and returns. You can also mix them up for a balanced approach.

Young investors can put money in ULIPs for longer durations. There is a lock-in period at the end of which you are free to withdraw your earnings, preferably in parts for better gains. As long as your ULIP is active, the insurer will continue to invest your money, and your capital gains will keep growing. If you do not withdraw the profits, they will be paid to your beneficiaries after your demise, along with the death benefit.

What is ULIP funds switching?

As we discussed before, you can choose to allocate your funds in equities or debts or mix them up. When choosing the right ULIP in which to invest your money, you can evaluate your risk appetite based on investment vs returns.

Equities allow you to hold positions, which in turn increases the risk. In a volatile market, owning equity implies that your returns can be positive or negative based on volume transactions and the performance of the equity itself.

Debt funds allow you to invest your money in safe instruments such as government bonds, securities, public funds, etc. These offer steady but low returns on investment.

You can balance both or choose one over the other when you start your ULIP. However, if you change your mind after observing the market, you can use ULIP funds switching to your advantage and maximise your profits or minimise your risks.

ULIP funds switching is the facility of changing the parameters of your investments after you have purchased a ULIP plan. Let’s try to understand this with an example.

Assume you choose to allocate 20% of your total investment in equities and the remaining 80% in debt funds when purchasing a ULIP. After a year or so, you observe that the unit-linked market is performing well, or you are open to bigger risks for larger returns. In such scenarios, you can contact your insurer about ULIP funds switching and adjust the parameters of your plan to adjust the risk element of your insurance policy.

Once you opt for ULIP funds switching, you could choose to allocate 40% in equities and 60% in debts or 50% of your funds in each or even increase the equities allocation to 100% based on your preferences. The result of ULIP funds switching will either increase your risk or minimise it, and based on the new parameters, your returns will also change.

Why are ULIPs better for young investors?

Young investors have greater responsibilities. Understanding the market and making choices based on volatility can be challenging. That is why ULIPs are brilliant plans to help grow your wealth.

ULIPs secure your family’s future with a reasonable sum assured and pay capital gains from your investments with the death benefit. You can rest assured that your loved ones will be well taken care of in the event of your demise.

Additionally, since ULIPs help grow your wealth in real time, you can enjoy the fruits of your investment. You can also use capital gains to circumvent financial crises. ULIPs serve as insurance plans, investment plans, and savings plans all rolled up together.

Furthermore, ULIPs offer tax benefits based on the annual premium and capital gains. Therefore, you can grow your wealth and keep it, too. ULIP funds switching adds to the benefits of these plans for young investors.