Get the most out of your ULIP
Whether you are in the process of deciding which ULIP to invest in; or whether you already have a Unit linked insurance policy to secure your important financial goals there are some key principles which should govern any decision related to ULIPs. Adhering to these key principles will allow you to make optimum utilization of your ULIP.
Appropriate life cover
Choosing an appropriate sum assured
Unit Linked Insurance (ULIP) plans are designed to help you meet your financial goals by ensuring you the value of your investments, or your nominee sum assured, which is the life cover of your policy. To make sure that your ULIP is truly working to assure your goal, you should choose a life cover that provides your family with adequate finances and hence security even in your absence, so that important life goals of your family are always secured.
Let us take the example of a 35-year-old man with 2 young children. He could begin with a sum assured of Rs 5 lakh. As the children grow and thereby the financial liabilities increase, he might want to increase the level of protection, which can be done by increasing his sum assured.
Choosing the right fund option
Unit-Linked Insurance Plans (ULIPs) come with an in-built range of fund options to choose from - ranging from aggressive funds (primarily invested in equities with the general aim of capital appreciation) to conservative funds (invested in cash, bonds, and money market instruments with the aim of capital preservation) so that you can decide to invest your money in line with your market outlook, time horizon, and your investment preferences and needs. If you have a high risk appetite, you can opt for a more aggressive investment option, and vice versa.
Additionally you also have the advantage of switching fund options to make your investments work in tandem with the market. These days, various ULIPs also offer the options of life stage strategy which keep dynamically altering themselves without you having to do any monitoring on your own.
Staying with a ULIPs for long term
Unit-Linked Insurance Plans (ULIPs) are meant to help you achive your financial goals over the long-term. As a short term investment tool, they will not give you considerable return on your investments, because of a product cost structure which is higher in the initial years. However, overall charge structure for the term comes down substantially over a long period of time thus allowing greater allocation of your premium in the chosen funds.
To get the best out of your ULIP, you should remain invested in the ULIP for the long-term of at least 8-10 years. This way, your investment will truly experience the power of compounding and thereby create greater wealth for you to fulfill your important goals.
Understanding the charge structure
Unit-Linked Insurance Plans (ULIPs) are designed to meet two of your most important financial needs: protection and investment. Both these benefits have some charges attached to them; important charges to know about before purchasing a ULIP are:
- Premium Allocation charge
- Policy Administration charge
- Mortality charge
- Fund Management charge
The important thing to note about ULIPs is that the overall charge structure in the long term comes down substantially, thus allowing greater allocation of premium to your chosen fund, thereby helping to wealth creation. It may be noted that insurers have the right to revise the fees and charges over a period of time.
Knowing the features
Unit-Linked Insurance Plans (ULIPs) offer you benefits of life cove along with investment ULIPs offers features such as top up, switch between funds, increase or decrease the life cover during the term of the policy, cover continuance option, surrender options & range of riders which can be attached to the main policy to provide you added protection.
You should always insist on seeing the brochure so that you can make right choices of ULIP to secure your goals be it retirement planning, planning for your children's education, or wealth creation.
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