In your 20s, you might feel that you don’t need life insurance can easily postpone it. At this age, most people do not have any liabilities or dependents. Also, to many people, parking their money in life insurance at a young age might seem unnecessary. Youngsters would rather invest their savings in different investments than buy life insurance. But what if you buy life insurance that is also an investment? This is exactly what a Unit Linked Insurance Plan (ULIP) does.
ULIPs are a type of life insurance policy that also has an investment quotient to it. When you buy a ULIP, you get a life cover along with returns on your investment. Depending upon the risk that you will take, you can invest your money in different ULIP funds. Equity-based, debt-based, and balanced funds are available to choose from. After your ULIP is matured, you also receive a sum assured. Since ULIP is also an investment, it is directly subject to market risks.
When is the right time to buy a ULIP?
Just like any other investment, the earlier you invest, the better. Depending upon your financial goals, you can choose the tenure and type of ULIP you want. Most ULIP plans have an age limit of 65 years. While buying a plan, it is vital that you conduct a comprehensive research. Use a ULIP plan calculator that can give you an idea about the money that you would put in and the approximate returns you can get. There are several websites where you can use ULIP plan calculators for free. All you have to do is enter the data required, like the type of fund, premium amount, tenure, and rate of returns, and you will get an idea about your earnings.
What are the benefits of buying a ULIP early?
Buying a ULIP in your 20s can give you different results than say, buying a ULIP in your 40s or 50s. It is an investment the earlier you make, the better.
Here are some ULIP benefits early investors get –
High risk-appetite
Younger investors are usually free from dependents and liabilities. Their ability to take risks is much more when compared to people who are looking after their families. Equity-based ULIPs have high risks involved and several young investors are willing to take that risk. These huge risks can benefit them immensely, as equity-based funds offer the highest returns. The data of the past years reflect that equities have outperformed other asset classes in the long run. Also, most ULIPs allow you to switch innumerable times amongst different funds without having to pay any charges.
The benefit of compounding
Compounding in simple terms means that the interest you earn is added to the principal amount. For example, you have an investment of Rs.1,000 and you received 10% interest; with the power of compounding, your principal amount now is Rs.1,100. Now, the next 10% interest that you receive will be calculated on the new principal of Rs.1,100 and your return will increase further to Rs.110. This keeps going on-and-on till the maturity of your investment. You can enjoy this compounding of your funds with a ULIP policy. Even if your plan is for 5 years, it is a considerable amount of time for your fund to compound and grow. When you start at a young age, you can seek the advantage of this compounding and multiply your wealth over time.
A bigger and better corpus
The earlier you invest, the bigger and more substantial will be your corpus in your later years. Since ULIP is a type of long-term investment, it can generate a substantial amount of wealth for your future. The longer you have invested, the more you would have invested and the more returns you would receive. Years later, when your ULIP policy matures, these funds would come in handy for your long-term financial goals. You can also withdraw partial funds in times of need.
A habit of savings
As youngsters, it can be tempting to spend all of your paycheck on leisurely needs and have fun. However, plans like ULIP help you develop the habit of savings with discipline. The recurring premiums you pay will not only secure your life but give you excellent returns in the long run, too. Also, the habit of savings that is inculcated through such plans goes a long way.
The earlier you invest, the more time you have. You can meet your life goals easily when you invest early. Also, the benefits of ULIPs are great as they don’t block your money like traditional insurance, and you will get returns on your investments.
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