The Buyt Desk
A Unit-Linked Insurance Plan (ULIP) offers life protection along with investment options. This insurance product helps you to fulfil your long-term financial goals. The best features of ULIP are the flexibility to switch the investment between different funds and a short lock-in period. As for any investment, analyzing your risk profile, financial goals, and financial capacity is necessary before buying a ULIP. Nonetheless, you cannot buy any ULIP. Thoroughly understand and evaluate the pros and cons of a plan before purchasing. Below is a list of features to consider before choosing a ULIP.
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Fund options
You may be aware that a ULIP allows you to change the fund type between equity, debt, and balanced. However, everything has a cost. Only 2 to 3 free of charge switches are available in a year. Evaluate different plans based on the number of free switches and thereafter charge per switch while deciding on a ULIP. Also, a plan that has more fund options is better than the one with limited options.
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Investment strategies
ULIPs offer different investment strategies in addition to the possibility of switching between funds. Automatic Transfer, Target Asset Allocation, Lifecycle-based Portfolio, and Trigger Portfolio are some of the strategies. Choose a plan with the investment strategy best suited for your financial goals.
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Premium payment options
You can opt for a ULIP that provides flexibility for paying the premium. In the limited premium payment option, you select the number of years (5 to 7 years) within which you will pay the premium. As the name suggests, the regular premium payment option requires you to pay a premium throughout the term of the policy at regular intervals.
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Policy term
An ideal plan will allow you to choose the policy term. A ULIP with a term of 5 to 20 years is advantageous over a ULIP with a term of 10 to 20 years.
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Performance of the plan
Check the historical data before selecting a ULIP. What kind of returns has the plan generated in the past? Can the probable returns satisfy your financial goals? Is the performance of the ULIP fund comparable to the benchmark index? Answers to these questions will help you decide on the best ULIP to buy.
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Charges
The charges associated with ULIPs are regulated. Nonetheless, compare the administrative charges of different ULIPs before choosing one. A ULIP having only fund management and mortality charges will be ideal. Ensure that the premium allocation charge is zero so that the entire premium is invested. Also, do not forget to compare the surrender charges of different ULIPs. Usually, there is no surrender charge after the lock-in period.
Novice investors, without knowledge of the share market, can experience market gains through a ULIP. In fact, the number of variable investment choices in ULIPs is many. Moreover, an expert fund manager takes care of the portfolio. These benefits along with a life cover make ULIP a good financial product. Following the above pointers, you can buy the ULIP most suited to your financial objectives.
