ULIP Buying Guide: Things to Keep in Mind


ULIP Buying Guide: Things to Keep in Mind

In the age of smart products, financial instruments cannot be left behind in the race. Unit Linked Insurance Plans (ULIP) is an innovative tool that combines the investment and insurance opportunities within one policy. With the help of the best ULIP plan in India, you can create a sound financial plan without much hassle.

ULIP can work well as a solution to the modern man’s money-related woes. Since your responsibilities are ever-increasing, investing and building wealth can be challenging to manage. The importance of having life coverage has also become undeniable in the face of several uncertainties in life.

How Does ULIP Work?

The ULIP full form is unit linked insurance plans, which means that they are market-linked financial instruments. A person buying ULIP has to pay a specific premium to keep the plan in force. Unlike a standard insurance plan, where the entire premium is used for life coverage purposes, the premium for ULIP is divided to use for investment and insurance.

A specific portion of this premium goes into securing life coverage, while the rest is invested in mutual funds of the policyholder’s choice. Different types of ULIPS offer various funds for investment purposes that can reap benefits over time. You can assess the risk factor against your financial goals to invest appropriately for the desired returns.

Insurers also allow switching of funds, if required by the policyholder. The flexibility offered in investments by ULIPs is an appealing feature for investors. Hence, using ULIP to fulfil dual financial objectives can be a sensible choice.

But, you might not be convinced in investing your money in ULIP without proper planning. If you are looking for the best ULIP plan in India that aligns with your requirements, you need to consider these things before making a decision:

  1. Check Your Investment Goals

    Each person has a unique financial profile which means there is no single best ULIP plan in India, suitable for everyone. You have to determine the objective behind investing in a ULIP, in terms of the policy period, returns expected, etc. If wealth-creation is the primary purpose of your investment, you can choose funds to invest accordingly.

    ULIP Buying Guide: Things to Keep in Mind

    Understanding and mapping your family’s financial needs for the near future enables you to create a more accurate investment portfolio. While doing that, you must remember not to let an isolated factor such as cheaper policy rates to drive the investment decisions. It is crucial to look at the bigger picture and invest, thinking of the future.

  2. Consider Your Life Stage

    At different stages of life, your investment needs may go through certain changes. For instance, a person in their late 50s will have vastly different financial requirements than someone in their late 20s. ULIPs are essentially long-term investment tools that come with an initial lock-in period of 5 years.

    For beginner investors, this can prove to be a valuable investment that brings disciplined savings habits. By the year 2025, the average age of Indians will be 29 years, being the world’s largest skilled pool of workforce. Since a significant portion of the population will fall in the younger category, it is crucial to understand how the investment needs can differ.

    Most people, who are starting to invest their money look for better benefits at reasonable prices. Therefore, considering ULIPs at an early stage in life can prove useful in the long run because of the dual advantage. It also makes for a sound investment for someone nearing their retirement or starting a family as it offers long-term coverage with returns.

  3. Go For Adequate Sum Assured

    When you buy a ULIP, the insurance element guarantees a death benefit to the nominee in case of the policyholder’s demise within the policy term. A commonplace misstep that investors are prone to make is over or underestimating the sum assured for life coverage.

    It can be confusing to determine the adequate amount for investment and insurance in ULIP. You may find yourself more inclined towards larger investment portions so that you can ensure better returns.

    However, remember that the death benefit from the plan should be adequate to support your family’s needs in a time of crisis. Therefore, choose a sum assured that can allow them to maintain the standard of lifestyle in the absence of an income source.

  4. Risk-Taking Ability

    A vital factor to be considered to invest in ULIPs is the risk-appetite of the investor. There are funds available with varying risk profiles to cater to diverse requirements. You can select them based on your risk-appetite, that is generally driven by a person’s financial standing and projected needs in the future.

    A market-linked instrument such as ULIP is vulnerable to fluctuations in performance. So, knowing your limits as an investor can help avoid future disappointments. With any risk-associated financial tool, it is best to be well-informed of the risks beforehand.