Do ULIPs Offer Protection From Inflation?


Due to inflation, one unit of any currency can now purchase fewer and fewer items each year. It is claimed that if inflation reaches 5%, your INR 100 note will only be worth INR 95 in a year, significantly lowering both your purchasing power and the value of your income. ULIPs do not ignore inflation; they offer protection from it through the methods listed below.

The following are some ways that ULIP can help you keep your hard-earned money protected against inflation:

1. Market-linked Returns

The fact that a ULIP plan offers market-linked, inflation-adjusted returns since it allows you the opportunity to invest in relatively less risky equities is one of its main disadvantages. As was mentioned, stocks tend to produce larger returns over the long term than any other asset class, such as debt or balance. They also outperform inflation, making ULIPs a reliable investment option. Additionally, ULIPs enable you to mix and match your assets according to your demands, select your investment portfolio, and insure against market risks and volatility because they give their clients as much freedom as possible.

2. A longer lock-in time

The ULIP can be customised as an investment and insurance solution for goal-based planning. Your hard-earned money should be invested in a ULIP to fulfil certain mid- to long-term objectives, such as retiring, establishing a family, purchasing a home, etc. Because of this, ULIP plans are created to be gainful if you invest for at least 10 years. They also feature a 5-year lock-in period, allowing you to invest methodically to progressively increase your wealth to achieve specific life and financial goals. The strength of compounding in ULIPs also encourages policyholder discipline and aids in forming long-term investment habits. Investing in equity-related funds over a longer period is necessary to get the best returns.

3. Tax Advantages

You can take advantage of the ULIP tax benefits along with your investment and life insurance. According to Section 80C of the Income Tax Act of 1961, investing in a ULIP may deduct up to INR 1.5 Lakh from your taxable income each year.

ULIP tax benefits offered by ULIPs can assist the investor in reducing the impact of steadily rising prices. You can withdraw money from ULIPs tax-free as well. Via its insurance component, you can also guarantee your loved ones’ financial security while you are away.

4. Flexibility in Premium Payment

ULIPs offer policyholders the flexibility to choose the amount and frequency of their premium payments. This means that investors can adjust their premium payments according to their changing financial circumstances, such as an increase in income or unexpected expenses. By making regular premium payments, investors can accumulate significant wealth over time, which can act as a hedge against inflation.

5. In-built Inflation Protection

Many ULIP calculator come with an in-built inflation protection feature that helps policyholders to stay ahead of inflation. The fund managers of ULIP plans often adjust the asset allocation of the funds based on market conditions and economic trends, ensuring that the investments remain in line with inflation. This ensures that policyholders can earn returns that are both market-linked and inflation-adjusted, providing them with a hedge against the rising cost of living.

 Buying a ULIP offers protection against inflation through the many advantages described above. One must consider all the elements while making an investment decision rather than only concentrating on high gains.

ULIPs (Unit Linked Insurance Plans) can be a valuable tool for protecting your hard-earned money against inflation. ULIPs offer market-linked returns that outperform inflation over the long term. This longer lock-in time encourages disciplined investing, tax advantages that help reduce the impact of inflation, flexibility in premium payment, and in-built inflation protection. By investing in a ULIP plan, you can enjoy the benefits of market-linked returns and secure your loved ones’ financial future through life insurance. It is important to consider your financial goals and investment objectives carefully before investing in a ULIP plan and seek professional advice. Ultimately, ULIPs can be an effective investment option for those looking to protect their wealth from the impact of inflation.

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