Over the past few years, ULIPs have gained tremendous popularity among retail investors. So, if you are keen to have a ULIP in your portfolio, the following tips will help choose the right plan.
A life insurance policy is a must-have in the financial portfolio. It allows you to get financial security against the uncertainties that life may throw at you. It keeps your family protected, even in your absence. An ordinary life insurance policy does not have any other benefit; it does not provide returns on your investment. Therefore, many people nowadays prefer investing in Unit Linked Insurance Plans. ULIPs are an excellent investment option that serves the dual purpose – it enables you to get life protection and provides you investment opportunity.
Over the years, in India, the ULIP plan has evolved significantly, and the insurers have introduced several investor-friendly features. While there are many options available in the market, choosing the right ULIP can be overwhelming, especially if you are a first-time insurance buyer. The following tips will immensely help you choose the right plan to suit your specific needs.
Check the life cover
While many people invest in ULIP to get valuable returns on their investment and tax-saving purposes, it is primarily an insurance policy that offers life protection. So, it is paramount that you take a close look at the sum insured of the policy. This is the death benefit that your family will receive in the event of your unfortunate demise. The sum insured be high enough to cover the financial needs of your family.
Free transfer for funds
One of the significant features of the ULIP plan that attracts several investors is that it gives the flexibility to switch the funds during the policy term. Your financial standing or long-term goal may change during the investment period, and you may want to switch your funds to suit your needs. ULIP plan gives you the flexibility to switch your funds from debt funds to equity funds and vice-versa. Generally, most insurers allow four free switches, but some insurers provide unlimited free transfers. So, choose an insurer that has no restrictions on the transfer.
When you invest in ULIP, you must bear a few charges like premium allocation charges, services charges, fund management charges, administration charges. Typically, the insurers deduct these charges from the investment returns, which means the final amount you receive will be affected. When you compare the ULIPs, you must be aware of the various charges and choose the insurer with the least charges.
The flexibility to choose the policy term
Generally, ULIPs have a lock-in period of five years. This means you cannot withdraw your investment until the end of the policy term. After maturity, the insurer will pay the sum invested (the principal amount) and the return earned in a lump sum amount. But, some companies don’t pay back the money until you reach 50 years.
You must pick the right plan depending on how long or short you want the investment term to be. Remember, the longer you stay invested in ULIP, the higher the returns potential. But, if you’re going to save for a short-term goal, a five-year ULIP plan will be an ideal choice.
Investment across classes
Another important thing to consider while picking the best ULIP plan is its flexibility to invest across different funds. Some ULIP plans allow you to choose between 7-8 funds to put your money, and others may have lesser options. So, when you compare the ULIPs from different insurers, it is better to choose the right company that gives you the maximum flexibility in fund choice.
Now that you are aware of choosing the best ULIP make sure that you do your due diligence and choose the right plan that offers maximum life protection and gives you investment flexibility.