If you are up-to-date with financial investment and life insurance policies, you must have heard of ULIPs (Unit Linked Insurance Plans). If you haven’t, you should know it is a life insurance policy that also works as an investment scheme. Thus, you get protection coverage and the scope of earning great returns over a single plan.
A ULIP differs from the usual life insurance plans, which focus only on the life coverage attributes. To understand this better, here’s a brief definition of what a ULIP is, along with the factors to consider for choosing the right plan.
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Understanding the Purpose of ULIP
A ULIP is a new and unique investment instrument that comes with life insurance protection. It has pretty-much various systematic investment options along with market-linked returns. It helps you build wealth to fulfill your big dreams or financial goals over time.
When making a ULIP investment, you are putting your money across various debt or equity funds, depending on your specific risk appetite. All your premiums against the ULIP plan will be deducted from your taxable income under Section 80C. Moreover, the returns you get from the ULIP plan are also tax-free, which is a similar facility for traditional insurance plans as well.
Whether you intend to achieve tax savings, capital appreciation or financial security for your family, a ULIP is a three-in-one investment scheme for you to count on.
Factors to Consider When Choosing the Right ULIP Plan
If you are aware of the perks of making a ULIP investment over traditional insurance plans, then here are some factors for you to count on:
1. Analyse Risk-Handling Capacity
One of the most important factors for you to consider before choosing a ULIP as your investment plan is to be aware of your risk-bearing capacity. When you are at the start of your earning age, you can take bigger risks. But, soon, you have dependents or a family to care for, and the risk-bearing capacity will decrease.
When you are checking out the available ULIP plans, consider the risk-handling factor at different stages of life ahead. This will help you make better decisions on selecting the right plan. For instance, if you can bear high risks, then you can go with a ULIP investment plan on equity funds.
Later, if your risk-bearing capacity has decreased, you can always switch your funds based on the market conditions. But for that, you need to check with the insurer whether or not the free switching feature is enabled with your plan.
2. Draft a Personal Investment Plan
Consider your financial goals in the long term on priority. If you plan to buy a house or a car or plan education abroad for the kids, then pick the plan to help you fulfill the same. Take clever decisions on your ULIP Investment by calculating the time you will need, with a specific investment amount, to achieve the decided goal.
For instance, suppose you have plans on buying a home in a 10-year time from now. In that case, it will be easy to decide on an amount that can be saved for a decade ahead with specified returns to meet your goals.
3. Avail Appropriate Life Protection
ULIPs are not just for investment but also for your life protection coverage. It extends coverage to ensure your family can avail of financial security in case of your demise. The 10% ULIP premium can be used for the minimum life coverage.
Beyond the full coverage plans that you might already have, a ULIP will help provide enhanced protection. Read the terms and conditions properly to determine the coverage policies within the ULIP plan.
4. Compare Cost-Benefit Aspects
ULIPs are available for you to explore the attractive benefits and features through top-up premiums, switching funds, etc. You need to analyze the various ULIP characteristics alongside the standard cost, which will help you make better choices on enhanced profitability.
Apart from that, when choosing a ULIP, you can review the performance of funds for the specific plan. The fund performance should be consistent, and you should examine the same to learn how the fund responds to market fluctuations. Check the preceding and future performances to anticipate the benefits.
In a Nutshell
Whether you are willing to attain maximum returns, life protection, or set up a long-term financial goal, ULIPs are the perfect pick for you. But remember, choosing the right plan is of utmost importance. You need to assess your obligations and capacity to handle risks. Thus, this will help you secure your money and grow it, but it will also protect your family even when you aren’t there.
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