Bonuses are one of the many things every working individual might look forward to every festive season. According to the Payment of Bonus Act, 1965, you are eligible to receive 8.33% of bonus on your salary. As a working professional, you might plan many things around this windfall amount, which you receive as a bonus every once in a year. While many Indians might decide on spending it, a lot of other people prefer investing it in a smarter way. It is a disciplined way to invest your bonus in a monthly investment plan like a Unit Linked Insurance Plan (ULIP) for a better future.
Before investing your bonus in a ULIP investment, let’s understand what a ULIP plan is in detail:
A ULIP plan is a combination of investment and insurance under one plan. It is a goal-based investment plan, which helps you to accomplish your financial goals.
Now that you have a basic picture of a ULIP policy, let’s take a look at the top nine reasons to invest your bonus in a monthly ULIP policy:
- You will receive life coverage
As mentioned above, you are likely to receive the dual benefits of ULIP policy. When you purchase a ULIP policy, you receive a life cover for the financial protection of your loved ones. With ULIP insurance, your loved ones will receive a maturity pay-out in your absence.
- You are free to select a premium payment term
Under a ULIP policy, you should pay premiums to receive life coverage in return. As a policyholder, you can select your premium payment term based on your preference. You get the option to select it monthly, annually, and half-yearly. Confirm with your insurer to check whether they offer the flexibility in selecting the premium payment.
- You can choose from different funds
A ULIP plan gives you the freedom to select between its two main funds options: equity fund and debt fund. With a ULIP plan, you can make the most of these two available fund options. As a policyholder, you can decide whether you want to put your money into equity funds or debt funds based on your risk appetite and financial goals.
- You can switch between funds
A ULIP policy is transparent as well as a flexible option of investment. When you buy a ULIP plan, you can switch between equity and debt funds. For instance, if you have initially selected debt funds due to low-risk appetite, you can shift to equity funds to gain high returns and vice versa. Many insurance companies allow the option of ‘free’ switches every year.
- You are secured from market volatility
On purchasing a ULIP plan, you should pay regular premiums. When you regularly pay the premium of a ULIP policy, it becomes easier to balance the market highs and lows. Regular premium payments ensure that you don’t have to pay a large amount when the market is high.
- You can utilize additional riders or bonuses
Many insurance companies might provide you with riders, which enhance your ULIP policy. There are additional riders like accident death cover, critical illness cover, and so on. Apart from riders, certain insurers might also offer loyalty additions to stay invested for a longer period. These extra benefits will add more value to your ULIP policy.
- You can make use of the tax-saving benefits
The biggest advantages in this category come in the form of ULIP tax benefits. Under Section 80C of the Income Tax Act, 1961, you can claim a deduction up to Rs. 1,50,000 on taxable income. In addition to this, the maturity payout, which your family members receive in your absence is tax-free under Section 10(10D) of the Income Tax Act, 1961.
- You can fulfil your long-term goals
ULIPs are long-term investment options since it has a lock-in period of five years. When you stay invested for five years, you might not only receive better returns but also fulfil your retirement purpose. The long lock-in period allows a high accumulation of funds, which makes it easier to meet all your life goals.
- You can make a full withdrawal
A ULIP plan provides a withdrawal facility, which can either be full withdrawal or partial withdrawal. While many insurance companies allow a full withdrawal after the completion of your lock-in period, the rest of the insurers offer partial withdrawal pertaining to certain conditions.
In a nutshell, a ULIP policy is a market-linked product, which impacts the Net Asset Value (NAV). Since your bonus is a reward of your hard work, make sure that you invest it wisely in the right assets. In the end, you would be responsible for your actions in terms of a ULIP investment.