Unit Linked Insurance Plans (ULIPs) is a combo of mutual funds and life insurance benefits packed in as a single product. It offers market-linked returns and life insurance coverage benefits to the investor. In the ULIP, the premium is set considering the pre-mentioned charges and the net premium is allocated as per your chosen fund be it – equity, debt, balanced etc. Therefore, a ULIP investment not only gives the coverage advantage to the investor but also allows their money to grow.
The main benefit of ULIP is that it gives flexibility to the investors to change their investment strategy based on the condition of the capital market and their financial situations. The investment in ULIP is a transparent structure and allows investors to invest in annually, quarterly, or monthly as per their preferred mode.
The other essential benefits of investing in ULIP is that its tax exempted, convenient for a salaried investor to invest under a monthly scheme, enhances tax planning and higher savings without a load of spending onetime lump sum amount. While the market is filled with different ULIPs products, selecting the best one will require some thorough product research.
Here are some of the essential factors to consider in choosing a suitable and rewarding ULIP plan:
Begin by evaluating the charges, as these eat away the premium amount that is invested in the market. Therefore, the key to a good product is lower charges that would mean the higher premium amount that is spent. Investing in online ULIP plans is highly recommended, as these have no intermediary. Hence, no premium allocation charges, thus, it offers a lower charge structure.
Type of Charges:
The primary costs in a ULIP include the premium allocation charge used to collect for the expenses that are incurred in processing the policy. Then there is the mortality charge that the insurer takes to offer the insurance cover. It varies based on the investor’s age and the amount of cover. Fund management charge, which is for managing the fund, taken as a percentage of the value of assets, naming a few.
The next factor to look at is a fund variety. As a rule, higher the fund option in a ULIP more extensive will be their asset class investment, which makes the investment more rewarding. So, opt for plans that have higher fund options. The insurer may have a variety of funds. Firstly, the equity funds that is invested in the equity market. It has an aggressive investment strategy, is high in risk and offer better potential for high returns. Then there are debt funds that have a conservative investment strategy, mainly invested in debt and bond market and returns on them are conservative and low. Lastly, balanced funds are ideal for investors that prefer a moderate investment strategy because it offers higher returns than that generated by the debt funds but the risk is lesser than that in equity funds.
Terms of Premium Payments:
Any investment is successful if it is well planned to suit the individual’s financial goals. With ULIP plans, you have varied payment options available with different programs as some allow premium payments for the entire duration of the plan; some enable limited period premium, and others ask for a one-time investment. Therefore, considering a payment plan and tenure that matches with your financial preference is of vital importance.
A ULIP product also provides life coverage benefits, but the value is based on the investor’s preference. If your goal is to invest in ULIPs mainly, then look for a plan that offers the lowest sum assured as a higher the cover value, higher the charge. The charges levied in the plan may include the premium allocation charges, administration charges, fund management charges, mortality charges, etc. Moreover, if you need a comprehensive insurance and investment combo then go for a product that provides an excellent multiple coverage plan.
Some ULIPs have the free flexibility feature that allows switching, partial withdrawals, top-ups, premium redirections, etc., but the frequencies of free elements may vary so check the restrictions on the plan. The switching fund allows the investors to change the fund based their investment strategy during the policy period.
Partial withdrawals, as the name says, enable part withdrawal from the fund without affecting the planned continuity and can be done after the first five years of the plan. Finally, the top-ups would allow investors to make additional investments into the plan reap better of good returns. A ULIP also permits sum assured adjustments that mean any change increase or decrease in sum assured can be done to suit your current needs.
Achieving a decent return of investment is the primary goal of all investors, so before investing in the fund, it is essential to review the past performance of the money with the insurance company or in public domain. Select the one that has remained stable and consistent with the fund’s historical performance record.
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