UNITED STATES—If you are planning to purchase ULIP then it is important to first understand the different parameters of it and then make an investment. ULIP plans are basically a life insurance product, which offers the benefit of both world insurance and investment.
In the ULIP plan, a part of the premium is used to provide financial protection to the family, whereas the other half of the premium amount is invested in the market securities like stock, bonds, debts, and equity with an objective to gain investment return in the long-term. Even though many people find the ULIP plan complex to understand, but to make it a lucrative option of investment, here are some of the important points that you should consider before investing in ULIP.
- The Risk Appetite
The money invested in the market securities in the ULIP plan is subject to market risk. Thus, it is very important for you to have a proper understanding of your risk appetite and determine your financial commitment prior to investing in a ULIP plan.
As per your risk appetite, you can choose the right fund option to invest in. if you have a high-risk appetite then you can invest in equity funds, as it includes high-risk. However, the returns offered by equity funds are also very high as compared to others. ULIP plans are mainly equity-oriented. In ULIP plans over 65 % or majority portion of the fund are equity, whereas the remaining investments are done in corporate and government debt instruments.
If you have a medium to low-risk appetite then you can consider choosing debt fund for investment as it includes low-risk and offered a regular return on investment in the long-term.
- The option of Premium Payment
ULIP plan comes with 3 different premium payment options- regular premium payment, single premium payment, and limited premium payment. You can choose the premium payment option as per your financial niche. If you have a lump-sum amount as savings and wants to invest in the ULIP plan then you can choose the option of single premium payment. On the other hand, if you want to pay the premium on a regular basis then you can choose the option of regular premium payment. Similarly, you can choose the option of limited premium payment if you want to pay the premium of the policy for a limited term period.
- ULIP Charges
This is one of the most important factors to consider before purchasing the ULIP plan. Before, a lot of investors use to avoid investing in ULIP due to the high charges associated with the investment cum insurance product. However, nowadays, some of the leading life insurance providers have come up with new-age ULIP products, which includes bare minimum charges and offers multiple features to ensure that the investors get the maximum return and assured insurance protection.
The different charges applicable on ULIP plans are:
- Initial Charges
- Premium Allocation Charge
- Fund Management Fees
- Mortality Charge
- Administration and Service Charge
- Partial Withdrawal
- Discontinuation Charge
By having proper knowledge and information about charges will help you to filter and choose the right ULIP plan for investment.
- The Flexibility of Switching Funds
The risk appetite of every investor change with time. If you purchase a ULIP plan at policybazaar then it is possible that with time your risk appetite also grows considerably, thus ULIP plan provides you the flexibility to switch between funds as per your risk appetite. This provides you an opportunity to invest in funds, which are more likely to give higher returns over a specific time period. Before purchasing the ULIP plan make sure that you consider the number of free switches, flexibility of switches the ULIP policy offers, and cost per switch.
- Fund Options Offered
It is important to check the fund options offered by the ULIP plan before purchasing it. ULIP plan generally offers multiple fund options at one go. The funds offered by ULIPs can be equity or debt or a combination of both in varying ratios. While investing in the ULIP fund make sure that you check the past performance of the funds. Checking at the ULIP funds NAV will make it easier for you to understand, which is the best plan to invest in. Depending on your risk-taking ability, financial situation, and changing lifestyle you can switch funds that can best suit your new scenario.
- How Long are You Willing to Stay Invested?
This is another important factor to consider before investing in ULIP plan. ULIP plans are generally a long-term investment option. So it is important to decide, whether you are in for a long-term commitment or not. Unit Linked Insurance Plans are most fruitful for investors who want to invest in a long-term investment. Moreover, most of the ULIP plans come with a lock-in period of 5 years, which means that you can surrender the policy only after the completion of 5 policy years.
If you want to accumulate wealth over the long-term period or you want to create a financial cushion for your child’s higher education or marriage then the ULIP plan is a lucrative investment option due to its long-term outlook. Moreover, to choose the best ULIP plan for the investment you can track simple details like the total value of the fund, ULIP NAV, the equity-debt allocation, etc.
- Don’t Miss on the Insurance Coverage
As we know, the ULIP plan is an Insurance cum investment product, so treating ULIP only as an investment product will be wrong. Make sure that you check how much insurance coverage the ULIP plan is offering before purchasing it. Keep in mind that the financial security of your family is equally important as achieving the financial objectives of life. Focusing on the higher investment returns in the long-term is great but it is equally important that your family has insurance coverage to deal with the eventualities even in your absence. After all, the financial planning one does is for the well-being of the family.
The Bottom Line!
In order to have a financially secure future, growing wealth is an important objective of any individual. Thus, the ULIP plan proves to be a remunerative financial product for this. Now that you know the important points to consider, make sure you keep these points in mind and choose the best suitable plan as per your requirement.