ULIP Returns In 25 Years

Unit Linked Insurance Plans (ULIPs) are financial instruments that combine the benefits of investment and life insurance under one product. Ideally, long-term investments in ULIPs are likely to offer substantial returns, mainly due to the power of compounding and market-linked growth. ULIPs offer a variety of funds to choose from as per your risk appetite so that investing for the long term becomes easier.

What is a 25-Year ULIP Policy?

A ULIP refers to a type of life insurance plan wherein the premiums are used to fund the life cover and to invest in the funds of the policyholder’s choice to offer them maturity benefits.

A 25-year ULIP policy is a contract between an individual and an insurance company where the policyholder stays vested in the policy for 25 years. By paying the premiums regularly over the course of two and a half decades, the policyholder enjoys the dual benefits of investing in market-linked options and life insurance coverage. Over time, the investment component grows based on market performance. The policyholder can look forward to enjoying substantial ULIP returns in 25 years by staying consistent with their investment.

At the same time, the policyholder also enjoys the assurance of a life cover. If an unfortunate event were to occur, the proceeds from the ULIP scheme can financially support the dependents in the absence of the life assured.

How Does a 25-Year ULIP Policy Work?

Buying a ULIP for a 25-year duration is a long-term commitment, and also a significant financial engagement. Thus, it is essential for policyholders as well as the beneficiaries to understand how these plans function, so they may make the best of it.

The policyholder pays the premium for the ULIP plan. This premium allows the policyholder to continue their life cover and to invest in the funds of their choice. The policyholder can select which funds to invest in based on their risk appetite and financial goals. You can also switch between different funds to suit your evolving needs.

The investment component benefits from market-linked returns, and the policy's value fluctuates accordingly. The ULIP fund performance depends on the market’s ups and downs. A market high will lead to positive effects while a market low can lower your overall fund value. However, it is important to not get swayed by temporary fluctuations if you have a long-term investment objective.

In a span of 25 years, the ULIP’s fund value may increase significantly. Partial withdrawals may be allowed in your ULIP once the lock-in period is over. In addition, you may also enjoy tax benefits under Sections 80C and 10(10D) of the Income Tax Act, depending on your regime selection and some other factors.

The life cover also stays active for the 25-year period. In case something unfortunate happens to the insured during this term, the nominee can initiate a claim with the insurance provider.

How are the Return Rates for a 25-Year ULIP Policy Calculated?

The ULIP returns in 25 years are calculated based on the Net Asset Value (NAV) of the chosen funds.

The investment component of the ULIP works similarly to some market-linked investments, such as mutual funds. The money from different investors is pooled into one fund, with each investor receiving a number of units that corresponds with their contribution to the fund.

The NAV is the value of each unit in the fund. The ULIP returns are distributed depending on the number of units each investor has.

Returns can depend on factors like fund performance, market conditions, the duration of investment, and more. ULIP returns are compounded, which means the returns are reinvested along with the principal. Hence, the longer you invest, the better the returns are likely to be. As a result, it is widely assumed that ULIP returns in 25 years will be higher than ULIP returns in 5 or ULIP returns in 10 years. The power of compounding is one of the reasons why investors are advised against early ULIP surrenders. ULIP returns are subject to market risks and are not guaranteed. Investors should take their risk appetite into consideration before making investments and fund choices.

When reviewing ULIP returns in 25 years, you must also note the ULIP charges involved in the process. As ULIPs require administration and maintenance, the insurer will charge specific fees for such purposes. Ensure that you have an idea about the charges involved when deciding to invest in ULIPs.

In addition, use a ULIP plan calculator to estimate your returns and make informed decisions for optimal growth of your funds.

Why Choose a 25-Year ULIP Policy?

There are many reasons to choose a ULIP plan for 25 years.

Market-linked Returns

ULIPs allow you to invest in the funds of your choice. Based on their performance, you can enjoy market-linked returns that can help you meet your goals. As the returns are compounded, the total gains you can enjoy increase exponentially.

When this process occurs for a long period like 25 years, a substantial corpus can be created. The policyholder can use the ULIP for long-term goals. Using a ULIP plan calculator can help you get an estimate of the returns and make long-term financial planning easier.
Flexibility

One of the noteworthy ULIP benefits is the flexibility it offers to investors. The policyholder has the freedom to choose which of the available funds they want to invest in. If the chosen funds are no longer suitable for their needs, they can switch to a different fund. For instance, one can switch from equity to debt and vice versa, as per their changing risk appetite and return expectations. This flexibility can help create a dynamic investment journey.
Benefit of Partial Withdrawals

After a lock-in period of usually five years, ULIPs permit partial withdrawals. You can withdraw from your accumulated corpus to help meet any unforeseen financial needs. This feature allows you to enjoy liquidity without having to let go of future stability in favour of a secure present.
Tax Benefits**

Investing in ULIPs allows you to enjoy tax benefits as per prevailing tax laws. Under Section 80C of the Income Tax Act of 1961, the premiums paid towards a life insurance plan (including a ULIP) are tax-deductible up to ₹1.5 lakhs. In addition, the maturity proceeds from the ULIP may also be tax-exempted under Section 10 (10D) of the Act. These benefits are subject to terms and conditions. Hence, it is advisable to read up on ULIP taxation rules before going ahead.
Life Coverage

The life insurance component of the ULIP provides you the assurance that your family will be financially secure even in your absence. If any unforeseen event were to occur, your loved ones would receive the proceeds of the plan. Furthermore, there are two types of ULIPs. In type-1 ULIPs, your family receives the higher of the two: the sum assured or the fund value. In type-2 ULIPs, the family receives the sum assured as well as the fund value. Thus, you can choose from different types of ULIPs to give your loved ones optimal financial protection.

Is a 25-year ULIP Right for you?

A 25-year ULIP is ideal for individuals who have long-term financial goals and the discipline to stay invested over a long period. If you are planning for milestones such as your child's higher education, retirement, or long-term wealth creation, a 25-year ULIP can be a smart choice. It offers the dual benefit of market-linked investment and life insurance coverage. This gives you the opportunity to grow your wealth while also securing your family’s future.

This type of life insurance plan is best suited for individuals with a moderate-to-high risk appetite, as ULIP returns in 25 years will be influenced by market performance. It is also beneficial if you prefer a flexible and dynamic investment journey as ULIPs allow you to switch funds. In addition, if you think you might need liquid funds in a few years’ time, ULIPs can be a good option as they allow partial withdrawals after the lock-in period.

If you are looking for tax-efficient investment options, ULIPs offer deductions under Section 80C and tax-free maturity benefits under Section 10(10D), subject to terms and conditions.**

However, to enjoy ULIP returns in 25 years, you need to commit to the full policy term. If you think you are not ready to consistently invest for two and a half decades, or prefer guaranteed and predictable returns, a 25-year ULIP policy may not be the best fit. But if you want to become a disciplined investor and want to enjoy long-term capital gains on ULIPs, it can be the right avenue.

ULIPs offer a balanced combination of insurance and investment under one product, making them perfect for long-term financial planning. However, one must be aware of the risks attached to the investment component of the plan.

Whether you are opting for a 25-year ULIP or a whole life ULIP, make sure to understand the complexities involved in the process, as ULIPs can greatly differ from regular life insurance. By understanding the workings of the plan and being consistent with their investments, policyholders can enjoy considerable ULIP returns in 25 years and achieve their goals with ease.

FAQs on Benefits of Life Insurance

ULIP Performance & Returns
Managing ULIP Tenure
ULIP Taxation

What is the average return on a ULIP?

Answer: The average return of a ULIP depends on various factors, like market performance, investment duration, type of fund chosen, and more. On average, an equity-oriented ULIP may give similar returns to equity-linked investments. However, remember that past performance is not indicative of future returns.

Are there any guarantees on the returns of a ULIP investment over 25 years?

Answer: The returns of a ULIP are not guaranteed, as the funds are invested in market-linked instruments. The ULIP returns in 25 years depend on market performance. It is advisable to be aware of the risks involved in the process before investing.

Can I check the performance of my ULIP investment over the 25-year period?

Answer: Yes, you can check the performance of your ULIP scheme through online portals, mobile applications, or through your insurance company’s branch. In addition, you will receive statements about the ULIP fund performance from your insurer on a regular basis.

Are there any bonuses or rewards for investors who maintain their ULIP investments for the entire 25-year term?

Answer: Some companies may offer rewards or loyalty bonuses for investors who complete their 25-year tenure. However, this is subjective and varies from insurer to insurer. If you are keen on such bonuses, consult your insurance provider before making any purchase decisions. Making smart choices and using the right strategies with your ULIP investments can help you with your wealth creation goals.

How does the ULIP investment cater to changing financial goals and objectives over a span of 25 years?

Answer

A ULIP policy allows you to switch funds from one category to another. Suppose you had invested in an equity fund when you were in your 20s and had a high risk appetite. However, now you prefer conservative options while in your 30s. Here, you can reach out to your insurer and switch your existing fund option to align your investments with your changing lifestyle.

You can also opt for the premium redirection feature, wherein your upcoming premiums are moved to a different fund option than you had originally chosen.

Can I adjust my asset allocation within the ULIP to manage risk over 25 years?

Answer: Yes, you can adjust your asset allocation within a ULIP to suit your needs. With the fund-switching feature, you can transfer funds from one category to another. The premium redirection feature allows you to shift your upcoming premiums towards a new fund. This allows you to manage risks and enjoy optimal ULIP returns in 20 or 25 years.

Are there any tax implications on the returns generated by ULIPs over 25 years?

Answer

As per prevailing laws, the maturity proceeds from a ULIP (issued on or after 1st February 2021) will be taxable if:

The annual premium paid for the ULIP exceeds ₹2.5 lakh in any year during the 25-year term. Similarly, if you hold multiple ULIPs and the aggregate annual premium goes beyond ₹2.5 lakhs in a year, the maturity proceeds will be taxed.

In addition, as per updates in Union Budget 2025, the taxable proceeds from a ULIP will fall under long-term capital gains (LTCG), just like other equity-based investments. The LTCG tax rate applicable is 10% on gains exceeding ₹1 lakh in a financial year. However, no tax is levied on maturity proceeds if they are paid out due to the death of the policyholder.

As ULIP funds cannot be withdrawn before a year is completed (due to the lock-in period), a case of short-term capital gains tax will be rare.

** Tax exemptions are as per applicable tax laws from time to time.

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