Unit-Linked Insurance Plans, or popularly known as ULIP, is a policy that offers individuals a risk cover along with an investment opportunity. Unlike other insurance plans, you can create wealth by investing in market-linked funds and earn high returns in the long term. To help manage your investment and get good returns, ULIP plans also provide you with numerous lucrative features such as fund switching. However, before you purchase one, there are some crucial things you must consider to make the most of your insurance. So, continue reading below.
- Various charges involved with ULIP
As ULIP plans aren’t similar to the pure life covers and contain an investment component, there are several charges involved. Some key ones are fund management fee, premium allocation charges, switching fees, mortality charges, surrender charges, etc. These get deducted from your premium amount and the rest is then invested in your chosen fund type. Therefore, it is crucial to be aware of such fees so as to better plan your ULIP returns for the future. Another aspect that you must know is that the impact of these charges reduce as the lock-in period gets over. Thus, you can avail higher returns by staying invested for longer. By considering these factors, you can map out your profits before purchasing a plan.
- Your risk appetite for ULIP investment
Every policyholder has a risk appetite and the amount of risk exposure they are comfortable with. As you already know that ULIPs allow you to invest in equity, debt or a mixture of both types of ULIP funds, it is vital to understand your risk appetite. Based on this, you can select a suitable fund option and earn good returns through the policy. Just like most investors, you might also have a life goal to achieve with this investment. It could be saving up for retirement or purchasing a house. By investing correctly and planning your ULIP returns, you can easily fulfil your life goals.
- Availability of fund switch option
Insurance providers enable you to switch between fund types in case you change your mind or want to aim for better returns. However, there are a certain number of free switches available in the beginning. After utilising the free switches, you will have to pay a fee for changing your investment fund. Hence, knowing how many times you can change your fund for free and the cost per switch beforehand can be beneficial. Check out the ULIP calculator to plan your long-term profits and make the most of your investment.
- Long term ULIP investment
When you consider the investment component in ULIP, it is always recommended to stay invested for the long term. As mentioned above, the effect of various charges in ULIP starts to reduce and thus, more of your premium gets dedicated towards the fund. You can also add surplus corpus to increase your profits with the top-up facility. Therefore, investing in ULIP plans for a longer tenure even after the lock-in period gets over, can give lucrative returns. So, as an investor, you must consider this aspect and understand the goals you want to achieve from your investment. Exiting your policy just as your returns start to grow can be detrimental.
- Your life cover requirement
Though most investors opt for ULIP due to its lucrative investment feature, life cover is a vital part of the plan as well. With this unique policy, you can secure your loved ones while creating wealth to fulfil various life goals. Hence, it is advised to give equal importance to the sum assured and choose the insurance coverage wisely. The lump sum benefit should be sufficient to help your family stay financially independent. Hence, you must estimate the expenses of your loved ones and any other monetary requirements such as debts, loans, etc. A high sum assured amount can go a long way in acting as a backup in the event of a mishap.
With this, you must have learnt the Unit-Linked Insurance Plan meaning and the key factors to consider while purchasing a policy. Thus, it is recommended to make the most of this unique financial instrument and plan your investments well. Make sure to use the free ULIP calculator available online to get an insight regarding your ULIP premiums and the returns that you can earn.