What is a ULIP?
A ULIP that is a Unit Linked Insurance Plan offers benefits of both insurance and investment under one plan. The premium you pay towards the ULIP plans is divided into two parts: one part goes towards the premium of the insurance policy, and the other part is invested in market funds as per your choice. You can choose the market funds to invest in depending on your risk appetite. For example, if you have a high-risk appetite, then you can choose to invest in equity funds. If you have a low-risk appetite, then you can opt for government bonds, fixed annuities, or fixed deposit schemes.
What are the types of ULIP plans?
Based on whether your goal to invest in ULIP plans is long-term or short-term, you can invest in the following ULIP plans.
- ULIPs for long term wealth creation
- Child ULIP plans
- ULIP pension plans
- ULIP plans for medical needs
What are the factors to consider while choosing ULIP plans?
- Determine your risk appetite and ULIP investment offers – Market risks involved in ULIP plans are the same as mutual funds, equities investments, or fixed-income securities. The investment risk of the portfolio depends completely on the policyholder. Thus, you must access your risk appetite and choose the ULIP fund that will support your risk appetite. Remember, you should neither underplay it nor should you overplay.
- Premium payment options – ULIP plans offer three options for the premiums paid towards it. You can compare them and choose the plan that suits you best. The three premium payment options are:
- Single Premium Payment – Here, the premium for the entire plan is paid upfront in a lumpsum amount.
- Limited Premium Payment – Here, you can choose the specific number of years to pay the premiums and pay premiums for that term.
- Regular Premium Payment – In this option, you will have to pay the premiums throughout the term of the ULIP plan.
- ULIP investment charges – Under the ULIP plans, charges are exempted from the value that accrues to you on investing in the ULIP plan. Thus, it is important to know and consider these charges before you decide to invest in a ULIP. Some of the common charges that one must pay under ULIPs are:
- Premium Allocation Charges
- Policy Administration Charges
- Mortality Charges
- Fund Management Charges
- Switching Charges
- Rider Charges
- Top-up Charge
- Premium Discontinuance Charges
The flexibility of switching in ULIP investments – An investor’s risk appetite, necessities and expectations from the invested plan differ with time. Hence, ULIP plans offer the flexibility of switching between the funds.
Limitations and exclusions of ULIP plans – Investment returns are subject to market risks and thus do not come with a guarantee. It is necessary to compare ULIP plans and determine the limitations and exclusions it comes along with. Especially in case of the sum assured amount.
Sum assured amount – Sum assured amount is the money that your nominee will receive in the event of your death during the policy’s term period. Make sure you carefully choose the sum assured amount as this will provide a financial cushion to your dependents after you. The more the sum assured amount, the better deal it is.