How to compare and buy ULIPs in India?
There are a plethora of options when it comes to investing. These myriad choices can often confuse a person. To narrow down, research is a critical component in your investment journey. Detailed research helps to filter out those investments that serve different needs from yours. Some alternatives offer high returns with high risk, while others offer lower returns but stable ones. Some investments also offer tax benefits, and these decisions are all about making trade-offs between different features to select a strategy that fits you right — based on risk appetite and investment goal.
A report titled the “Investment Pattern of Youth in India” supported by the Bombay Stock Exchange states that young and new investors are more inclined to take risks when it comes to investments. Hence, market-linked investment products gain favour for these investors. The pandemic that highlighted the importance of life insurance is something that no individual can ignore, be it young or old. Thus, when planning your finances, there must be a balance between protection and investment objectives. A Unit Linked Insurance Plan or ULIP is one such popular policy that offers both insurance and investment in one policy.
A ULIP cover charges a single premium, which offers life insurance coverage for death and disability, along with investment in market-linked securities. The investment in a ULIP plan is made through different funds that have varying risk appetites. For instance, an equity fund has the highest risk, but also offers high returns. On the contrary, a balanced fund balances the risk and returns to provide comparatively stable returns with reduced risk.
Compare a ULIP plan: Considerations to remember
There are various ULIPs to choose from and deciding on a policy can often be confusing. A detailed understanding of the policy specifics is necessary. Here are some handy ways how you can compare the various ULIP benefits to choose a plan that fits right:
- Charges levied
A ULIP plan involves several charges since the insurance company manages the investment on your behalf. Fund management charges, premium allocation charges, administration and service charges, and fund switching charges are some of the expenses that are deducted from your premium. It is essential to know how much premium is allocated to provide life insurance coverage. The charges in the ULIP reduce the net amount that is invested, and hence, a plan that has the least charges must be selected.
- Life insurance coverage and policy tenure
Every ULIP plan has a mandatory lock-in period of five years while the actual policy tenure is much longer. Depending on your insurance company, the tenure of a ULIP plan may differ. Since ULIPs are primarily designed to support wealth creation objectives, it is advisable to choose a policy that is longer in its tenure. The long policy period flattens out any market fluctuations that occur during its interim phase. A policyholder can also gain significant value for their investment with the power of compounding, which is often regarded as the eighth wonder of the world.
While you look for a suitable policy tenure to meet your financial objectives, do not take the insurance cover lightly. Life insurance coverage is also critical to ensure protection for your life while the investments help achieve financial goals.
- Options for different funds and fund switching
ULIP benefits include various fund options to suit every type of policyholder with different risk appetites. Each fund offers a different asset allocation that changes the risk involved. Equity funds, debt funds, balanced funds, liquid funds, and cash funds are different types of funds that you can opt for. Not every policy offers all types of funds, but a mix of the above, to hedge the total risk.
ULIP benefits allow fund switching where you get to choose suitable funds based on your risk-taking capacity. Using fund switching, you can reallocate your investment to a different fund within the same plan. This way, any underperforming investment can be switched to the one that is performing well. Further, fund switching can also be used to move to a stable investment from the erstwhile risky investment invested at the beginning of your policy tenure.
These are some factors based on which you can compare the available ULIP plans. In this process, a ULIP calculator is a free tool that is offered by insurance companies to simplify this decision. Not only does the ULIP calculator help to compare plans, but it also provides an estimate of the amount you need to invest to meet your investment goal. The bottom line is that ULIPs offer a balance between both protection and investment that help to safeguard your life as well as meet your financial objectives.
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