5 Things to do Before Investing in ULIP Insurance
5 Things to do Before Investing in ULIP Insurance
5/30/20 9:12 AM
A Unit Linked Investment Plan or a ULIP plan is one of the best investment options you can consider for securing your future. However, while ULIP insurance can offer you many benefits, you should consider certain factors before buying it. Doing a little bit of research and paying attention to some minute details can help you pick out a good ULIP insurance for you.
Right from reassessing your own needs and future goals to observing the features of ULIP you plan on purchasing, here are five things to do before investing in ULIPs.
Things to do when investing in a ULIP Policy
1. Check your motive and need
There are multiple reasons and goals that can be achieved with ULIP insurance, such as retirement, a child’s future expenses, home purchase, etc. You must pick a ULIP policy based on your goal and when you want your funds only. For instance, if your goal is retirement, you can start saving early and stay invested for a long term of 20 to 25 years. You can add more equity funds at the beginning of the term for better growth and slowly move to debt funds as you move closer to retirement to reduce risk and volatility. However, if you are investing in a ULIP for a short-term goal, you can pick a smaller term of 5 to 7 years and invest primarily in equity to ensure high returns. A ULIP return calculator can help you pick the right plan and term.
You must also check your motive along with your goal. If you are investing in a ULIP only to save tax, you might overlook the critical features and settle for a sub-standard plan.[PP1] [Bh2] ULIP tax exemption can be an added advantage, but it should not be the only reason to invest. In addition to this, keep in mind that a ULIP plan is an investment tool that also offers insurance to your loved ones. So, while you focus on the investment part, the sum assured should not be neglected. Hence, remember to pick a substantial amount as per your family’s requirements.
2. Understand the policy document and terms
Before you invest in a ULIP, make sure you know what the common terms on your policy document refer to. This way, you will be in control of your money and understand how your policy works. Some of these terms are:
- Life cover: This is the sum assured that your nominee will receive in case of your unfortunate demise.
- Fund switch: This will contain details about the number of times you can switch from one fund to another.
- Policy term: This is the duration of your ULIP insurance.
- Lock-in period: This is the minimum amount of time before which you cannot surrender or withdraw funds.
- Maturity benefit: This is the amount of money you will get at maturity.
3. Know the ULIP charges in India
A ULIP plan can come with expenses, such as the policy administration charges, surrender charges, mortality charges, premium allocation charges, fund management charges, etc. These can sometimes be high and eat into your profits. Before you buy a ULIP policy, make sure to compare different insurance companies and pick the one that seems the most affordable. Compare the features of ULIP plans and then look at their charges and premiums to pick the most cost-effective option.
4. Pick the right funds
ULIP insurance plans offer many fund options. They also allow you to switch from one fund to another several times during the course of the policy to bag high returns as per the constantly changing market conditions. However, in order to do so, you must understand each of these fund options and know what they can offer you. ULIPs offer three types of funds:
- Equity funds: These invest in stocks and can be highly rewarding and at the same time highly risky. They are suitable for investors who are not averse to the idea of risk.
- Debt funds: These invest in government securities, corporate bonds, etc. You can earn a fixed return on debt funds which is why they are ideal for low-risk investors.
- Balanced funds: As the name suggests, they present moderate risk and returns and offer a balance between equity and debt options.
You can invest in any of these or a combination of these as per your goal, income, and timeline. Life insurance companies offer two methods of fund management – Self-Managed and Expert Managed. Under the Self-Managed option, you can manage your own portfolio. This is ideal for individuals who understand the market and are confident about choosing their own funds for ULIP investment.
Alternatively, in Expert-Managed method, there are fund managers in the insurance company who manage your portfolio on your behalf. You will have to provide certain details, such as your risk appetite, financial goals, fund preference, etc., and based on your specific investor type, the fund managers will allocate, switch and modify your ULIP funds. This is great for individuals who wish to leave ULIP management to the experts.
5. Opt for a good insurance company
An insurance provider with a good claim settlement ratio, quick customer service, and a reputable brand image can ensure that you get the best investment and insurance experience. Considering the fact that ULIPs can be a long-term investment, it is in your best interest to pick an insurance company that you can trust and rely on. Getting stuck with a provider that offers poor services can be frustrating. So, study the company’s claim settlement ratio, solvency ratio, policy features, prices, customer reviews, and more to gauge their credibility and pick the best ULIP.
Edelweiss Tokio ULIP plans: Wealth Ultima
Now that you have gone through the list of 5 things to do before purchasing a ULIP policy, here is a plan from Edelweiss Tokio Life that you can invest in!
The Edelweiss Tokio Life Wealth Ultima Plan is ideal for saving for your child’s tomorrow. This ULIP plan offers loyalty additions and booster additions that can boost your earnings over time. The policy is perfect for all kinds of goals as you can decide when and how you wish to receive your funds under the Systematic Withdrawal Plan (SWP) option.
In addition to this, the Little Champ Benefit lets the policy continue in your absence so your child can use the maturity benefits as they like. The plan also offers tax benefits and covers death due to Covid-19.
To sum it up
A ULIP can secure your future and help you grow in life. And you can pick the best ULIP in India as long as you do these five things before investing your money. So, pay attention to the little details to get high returns and enjoy your investment journey with the best features.
Aastha Mestry - Portfolio Manager
An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.