What is a 20-year ULIP Policy?
A 20-year ULIP plan is a long-term financial instrument that provides both life insurance coverage and maturity benefits, the latter becoming available after you have invested for a span of two decades.
As with other types of life insurance, the policyholder pays regular premiums for the plan. Paying this premium allows the policyholder to enjoy dual benefits at once: the assurance of financial protection for their loved ones and the chance to invest in market-linked options and grow their wealth. The accumulated ULIP returns in 20 years, in the form of maturity benefits, give the policyholder financial support for future goals like retirement, children's education, or purchasing a home. At the same time, they can also ensure their family's financial security in case of unforeseen events.
How Does a 20-Year ULIP Policy Work?
Knowing what is ULIP as well as how it works is important to make the most of this financial product.
When you invest in a 20-year ULIP plan, your premium payments are divided into two parts: one portion provides life insurance coverage, and the other is invested in market-linked funds of your choice. These funds can be equity-oriented, debt-oriented, or a balanced mix. You can choose the allocation of your funds based on your risk appetite and financial goals.
The investments grow based on the performance of the chosen funds over the 20-year tenure. If you need liquid funds before the end of the tenure, you may be able to partially withdraw the amount from the ULIP scheme after the lock-in period of five years is over.
At the end of the policy term, you can claim the maturity amount, which is the accumulated ULIP returns in 20 years. In case of the policyholder's demise during the policy term, the nominee receives the higher of the sum assured or the fund value. In some cases, they may receive the total of both amounts. Thus, a life insurance plan like ULIP ensures comprehensive financial protection for your loved ones.
How are 20-Year ULIP Policy Return Rates Calculated?
To calculate the ULIP returns in 20 years, the Net Asset Value (NAV) of the fund is taken into consideration. It is the per-unit value of the fund and fluctuates based on market performance. When you invest in a ULIP, you are allocated a number of units based on your contribution to the total fund.
By multiplying the prevailing NAV with the number of units you hold, you can get a clear idea of the returns. However, ULIP charges such as premium allocation charges, fund management fees, and mortality charges can impact the overall returns. You can also get an idea of the returns without any manual calculations with the online ULIP plan calculator.
Why Choose a 20-Year ULIP Policy?
There are many reasons to stay invested in a ULIP for 20 years:
Market-linked Returns
With ULIPs, your money is invested in market-based options of your choice. Hence, they are known to offer better returns than regular savings plans, albeit with a higher risk factor. If you stay invested for 20 years, you are more likely to earn better returns due to the power of compounding. This means the interest is reinvested along with the principal. Thus, the ULIP returns in 20 years are expected to be considerably higher compared to ULIP returns in 5 years or 10 years.
Flexibility to Switch Funds
A unique feature of ULIPs is that they offer the flexibility to switch between funds, often multiple times during the plan term. This allows you to adapt your investment strategy according to your changing needs and market conditions.
Partial Withdrawals
Another significant ULIP benefit is that you can make partial withdrawals from a ULIP plan after the lock-in period of five years is complete. The feature can help you meet financial emergencies or specific goals without disturbing your entire investment. The partial withdrawal amount is dependent on the details of your policy.
Tax Benefits**
Investments in a ULIP are eligible for tax deductions under Section 80C of the Income Tax Act under the old regime. In addition, the maturity proceeds are tax-exempt under Section 10(10D). Remember that ULIP taxation is subject to certain terms and conditions.
Financial Safety Net for Loved Ones
ULIPs not only help you grow your money through investments but also offer life insurance coverage. If something unexpected happens to you, your family will receive a payout from the ULIP scheme. Thus, it acts as a financial safety net for your loved ones in your absence.
Strategies to Maximise ULIP Returns in 20 Years
Investing in a ULIP for 20 years can help you build significant wealth. To get the best possible ULIP returns in 20 years, here are some strategies to follow.
Be Committed for the Long Term
A ULIP is designed for long-term goals. The longer you stay invested, the better your chances of earning higher returns through the power of compounding. If possible, avoid withdrawing early and let your money grow with time.
Diversify Your Fund Allocation
With ULIPs, you get to select from a choice of funds like equity, debt, or balanced funds. You can mix and match based on your goals and risk appetite. Equity funds may offer higher returns over the long term, while debt funds are more stable. A balanced portfolio can be ideal for managing risk and reward.
Be Aware of Charges
ULIPs have various charges such as premium allocation, fund management, and policy administration fees. Make sure you understand these costs and how they affect your long-term capital gains on ULIPs.
Know the ULIP Taxation Rules
The returns you will receive are subject to ULIP taxation rules if certain terms and conditions are not met. For instance, as per amendments in Budget 2025, if the plan’s annual premium is over ₹2.5 lakhs, there will be a long-term capital gains tax on the ULIP if it is redeemed after one year. Consult a tax expert for detailed guidance on ULIP taxation.
Review and Modify Regularly
Check the ULIP fund performance regularly. If needed, switch between funds using the fund-switching option offered by most ULIP plans. It helps you stay aligned with your goals and market conditions.
Hold Beyond the Lock-in Period
ULIPs come with a 5-year lock-in period. But staying invested beyond this can give you better returns. A 20-year period is ideal for getting the most benefits from market-linked growth and compounding.
Who Should Buy a 20-Year ULIP Policy?
A 20-year ULIP plan is ideal for individuals with long-term financial goals like retirement planning, funding a child’s education, or building wealth over time.
It suits those who are comfortable with some market-linked risk in exchange for potentially higher returns as compared to traditionally safer options. If you want to enjoy the benefits of life insurance and investment without bothering with two different products, ULIPs are a good fit.
A ULIP scheme is also ideal for investors who can stay committed for the long haul to enjoy the benefits of long-term compounding. Young professionals, new parents, and anyone with future financial responsibilities can choose from the various types of ULIPs to build a strong financial foundation.
A 20-year ULIP can offer a balanced approach to financial planning as it combines the benefits of life insurance and market-linked investments. To enjoy optimal ULIP returns in 20 years, you must stay consistent and disciplined with your investments. Make sure you are aware of the ULIP charges, its taxation rules, and any other aspects involved in the process before you start investing. By being a well-informed investor, you can utilise ULIPs as a valuable tool to achieve your long-term financial objectives and secure your loved ones’ future.
FAQs
Are ULIP returns guaranteed after 20 years?
No, ULIP returns in 20 years are not guaranteed as they are subject to the market’s ups and downs. Any fluctuations in the market affect the fund performance of your ULIP. However, investing for the long term can help minimise the risks involved in the process. Long-term investing smoothens out the temporary fluctuations in the market and helps build a substantial corpus due to the power of compounding.
What kind of returns can I expect from a 20-year ULIP policy?
The returns of a ULIP are not guaranteed. However, as 20 years is a long period, the returns of long-term investing are likely to be good. Moreover, ULIPs, especially equity-focused ULIPs tend to give returns on par with other equity investments over a long period, while debt-oriented ULIPs provide more stability.
You can use a ULIP plan calculator to get an estimate of the returns. Keep in mind that the returns are subject to various factors, such as the charges levied by the insurer and your chosen investment strategy, amongst others.
What factors impact ULIP returns over 20 years?
Your ULIP returns in 20 years are impacted by various factors, such as:
While you can get an estimate of the returns using a ULIP calculator or by doing manual calculations, you can also reach out to your insurer for benefit illustrations to get a better idea.
What is the historical performance of ULIPs over 20 years?
Historically, ULIPs have performed on par with other investment options. Your choice of fund plays a major role in the fund performance of your ULIP scheme. Equity options are riskier; however, they have historically given higher returns. On the other hand, the returns from debt options may not match that of an equity fund but they come with relatively lesser risk.
** Tax exemptions are as per applicable tax laws from time to time.
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