When you invest in a certain financial product, you do so with the expectation that you will receive good returns. One can receive those returns in the form of a lump sum pay-out. Or they can choose to receive smaller amounts in regular instalments. In a ULIP insurance plan, you have the option to enjoy both kinds of returns. Besides this beneficial feature, a ULIP offers the policyholder the best of life insurance and investment. When you buy a ULIP plan, you are ensuring your life as well as creating wealth. This is a great way to tick off both items on your financial portfolio without buying two separate products.
To enjoy your returns periodically, you can set up a Systematic Withdrawal Plan. Let’s look into the details below.
What is a ULIP policy?
Let’s understand what a ULIP is and how it works. The payment of your ULIP premium is utilised by the insurer for two vital purposes. One major portion of the premium is used to create and sustain your life cover. Investment in market-linked instruments or debt options is carried out with the rest of the premium amount.
Life insurance cover, as many may be aware, is an extremely important and non-negotiable aspect of one’s financial well-being. It secures the future of your loved ones in your absence. The investment option, on the other hand, is an effective way to secure your distant future. The Systematic Withdrawal Plan is a way to achieve this objective.
What is a Systematic Withdrawal Plan?
A Systematic Withdrawal Plan (SWP) is a method of receiving returns from your ULIP plans in an organised, regular manner. You can set up a mode of frequency and a fixed amount. Accordingly, you will receive the amount at that time. You can choose to encash the withdrawal or direct it to your savings account.
Note that a ULIP plan has a lock-in period of five years. For this duration of time, you cannot make any withdrawals on your plan. You are allowed to set up an SWP only after the lock-in period is over.
Benefits of Systematic Withdrawal Plans
Encourages financial discipline
By opting for an SWP, you ensure that you enjoy the returns from your ULIP plans in a disciplined manner. Otherwise, many people are often tempted to withdraw their investments once a certain number of returns has been gained. This behaviour is more common during periods of market volatility. An SWP is an effective way to avoid panicky, market-based withdrawals.
A fixed source of income
Due to rising inflation in many sectors, it often happens that a regular salary proves to be inadequate. Costs, such as children’s school or college fees, home loans, or car loan EMIs, may remain pending. A Systematic Withdrawal Plan from your ULIP insurance policy acts as an alternative source of income and helps in dealing with these costs. Such an arrangement also allows you to save some money from your salary, which can be used for other purposes.
Tax benefits
ULIPs are known to provide a considerable amount of tax benefits to the policyholder. Your ULIP insurance policy makes you eligible to receive a tax deduction of up to Rs 1.5 lakhs against the premiums you pay for the policy. On top of that, the maturity benefit pay-out, the death benefit pay-out, and the surrender value pay-out are all tax-exempt under certain terms and conditions.
The best part is that the pay-outs from your Systematic Withdrawal Plan are also exempted from taxation. If you are looking for a tax-free source of regular income, then this is a great option.
Should you opt for a large lump-sum payout or an SWP?
The answer to this question is quite subjective, depending on your preferences and monetary needs. If your primary reason for investing in a ULIP is to receive a large corpus at the end of a long term, then a lump-sum pay-out may be the best option. However, if a regular source of income is what you seek, then SWPs are a better alternative. You can also enjoy the benefits of both with the help of frequent premium payments and disciplined investing.
Do reach out to an expert and get to know in detail what a ULIP policy systematic withdrawal is and what it could entail for you specifically.