In this article, we’re giving you a step-by-step guide for investors in the selection process of choosing the best Unit-Linked Insurance Plans (ULIPs). But before we go there, let’s try to understand what are ULIPs all about?
Well, if we talk about ULIP plan, it is one of the most effective ways of entering the equity market. Moreover, apart from this benefit, ULIPs offer a dual benefit of being backed up by insurance and investment where an investor can invest in the highest rated debt instruments. Here, the insurance premiums are paid by the insurer and part of that premium amount is taken away for administration charges and covering risk, while the balance amount is utilized for investing in mutual funds by way of allotting mutual fund units. Picking an appropriate ULIP is a process of monitoring and considering the following components:
Keeping a track on performance of ULIP
Before investing in any ULIP, it’s imperative to track the returns on it, since it relies upon the performance of fund in the market. Compare the ULIPs performance which will further guide you to find out how the debt, equity and other balanced schemes are performing. Besides, ensure enquiring about the top-up facility offerings, i.e. whether the investor can add a lump sum amount to enhance the policy’s savings portion.
Identifying your need and risk appetite
While investing in a ULIP, it is important to understand your risk appetite in order to know if you can afford handling situations like market crashes. You need to choose a ULIP that’s in accordance with your risk appetite. If you invest in a ULIP that’s high in risk thinking about the market being stable for a few years, there’s also a possibility of the market to crash and your money to get depreciated. Such situations often spell disaster in most cases for which you need to be prepared.
Option to Switch
ULIPs provide with an option to switch among various other funds. Hence, if you feel that the markets are at its peak, you may switch the ULIP option to debut funds in order to reduce the risks attached to it. Insurance companies usually charge an additional amount for switch options which are usually offered in a year.
Comparison on Expenses charged in ULIP
Insurance companies often allocate a lot of charges before transferring the money towards funds units. These charges range from 2.5 percent to 3 percent which varies from one insurance company to another. Here’s a list of charges you have to watch out for:
- Cost of insurance coverage
- Admin charges
- Funds switching charges
- Premium allocation charges
- Fees charged for pre-mature withdrawal of units
With versatile features of providing exceptional return, acting as a Tax-Saving Investment with minimum risk of losses and life cover, ULIP plan is undeniably one of the safest investment tools for achieving long-term financial objectives.