The primary purpose of any life insurance is to give you a sense of safety and ease of mind towards your family’s financial security. It ensures that your loved ones will not have any financial stress in case you are no longer around. But what if there was a policy that helped you build wealth and fulfil your life goals as well?
This is where ULIPs come in. A Unit-Linked Insurance Plan (ULIP) is a type of life insurance policy with the dual benefits of investment and insurance. A part of your premium goes into providing you with life insurance, whereas the remaining portion is invested into the market to create a corpus for you. Choosing a suitable ULIP for you may be made easier by researching and paying attention to a few aspects.
Here are the five key things to do before investing in ULIPs, ranging from re-evaluating your requirements and future aspirations to looking at the characteristics of the ULIP you want to buy.
What to do when purchasing a ULIP Policy
Verify your financial requirements and objectives
ULIPs can be helpful in many scenarios, whether it’s your retirement, your child’s future expenses, buying a house, etc. For example, if retirement is your objective, you can start saving early and invest for an extended period of 20-25 years. You can increase the growth of your funds early on and lower the risk exposure as you get closer to retirement. You can do this by gradually switching from equities to debt funds. For a short-term goal, you can choose a shorter timeframe of 5 to 7 years and invest primarily in equity to ensure good returns. You can choose the best plan and term with a ULIP returns calculator.
You must consider both your objective and motive to invest in a ULIP. The major goal of a ULIP plan is to give you the chance to build long-term wealth through investments in market-linked instruments. You shouldn’t buy a ULIP solely to lower your tax obligation. The money that has amassed in this way can be used to accomplish a variety of long-term objectives, such as paying for your child’s college tuition or retiring comfortably. Furthermore, as it also provides life insurance for your loved ones, you should not disregard the sum assured at the time of buying the plan, and select a sizeable sum assured based on your family’s needs. Therefore, while purchasing a suitable ULIP plan, you must pay attention to all these aspects and tailor them to your needs.
Examine the terms in the policy document
Make sure you understand the common terminology on your policy document before investing in a ULIP. This way, you will better comprehend the fine print and have greater control over your policy. Some of these terms are:
Sum Assured: This refers to the amount that is paid out by the insurance provider to your nominee(s) in the event of your tragic demise
Policy Term: This refers to the period for which your ULIP insurance will remain active.
Policy Payment Term: This is the duration for which you must pay the premium. In most situations, this is equal to the policy term. However, some insurers allow you to select a payment period that is less than the policy term.
Fund Switching: ULIPs allow you to choose where your money will be invested. You can choose from a diverse pool of funds with varying risk levels and returns. During the policy tenure, you are free to switch these funds based on their performance.
Lock-in period: This is the shortest period before which you are not permitted to withdraw funds from your corpus. It is set at five years for any ULIP.
Maturity benefit: This is the lump sum payout you will receive upon reaching maturity.
Investment Strategy: This will contain the details of your investment portfolio; the asset allocation across various funds, and how the portfolio will be managed going forward.
Understand the various ULIP charges in India
A ULIP plan may have certain charges associated with it, such as charges for administration of the policy, surrender, mortality, premium allocation, fund management, etc. Be careful to compare various insurance providers and what they charge before purchasing ULIP coverage and choose the one that appears to be the most reasonable.
Choose the appropriate funds
ULIP insurance plans provide a variety of fund choices. To maximize returns in accordance with the continuously changing market conditions, they also allow you to move your investments between various funds multiple times throughout the policy term. For example, Edelweiss Tokio Life Insurance allows you to make unlimited free switches in a year and choose from a pool of 7 diverse funds. Typically, ULIPs offer three different kinds of funds:
Equity funds: These invest in equities and have the potential to produce high returns but come with higher risk levels as well. They are appropriate for investors with a high-risk tolerance.
Debt funds: These make investments in corporate bonds, government securities, etc. Debt funds are perfect for low-risk investors because they allow for a more secure return.
Balanced funds: As their name implies, they offer a balance between equities and debt options while presenting moderate risk and return.
Depending on your objective, income, and timelines, you can invest in any one of them or go with a combination of these. Self-Managed and Expert Managed are the two fund management options provided by life insurance providers. You can manage your portfolio if you choose the Self-Managed option. This is perfect for those who are knowledgeable about the market and comfortable selecting their funds for ULIP investments.
On the other hand, the insurance company’s fund managers will manage your portfolio on your behalf under the expert-managed technique. Your risk tolerance, financial objectives, preferred funds, and other information will be required, and the fund managers will allocate, switch, and adjust your ULIP funds in accordance with your requirements. This is excellent for people who want to leave ULIP management to professionals.
Select a reputable insurance provider
Finally, you can be confident in your investments and insurance by choosing an insurance provider with a high claim settlement ratio, prompt customer service, and a solid brand reputation.
Picking an insurance provider, you can rely on is in your best interest, given that ULIPs can be a long-term investment. However, it will not be ideal if you are stuck with an insurer that is not up to your needs. To determine a company’s credibility and choose the finest ULIP, research its claim settlement ratio, solvency ratio, policy features, charges, customer reviews, and more.
To Summarize
A ULIP can protect your future and support your personal development. And if you follow these five steps before investing your money, you can choose the greatest ULIP in India. Pay attention to minor details to earn significant returns and enjoy your investment experience with the best features.
Edelweiss Tokio Life Wealth Secure+ is one of the plans you can invest in after reviewing the five things to do before buying a ULIP coverage! This ULIP plan includes booster and loyalty features that can gradually increase your earnings. Additionally, the policy’s Systematic Withdrawal Plan (SWP) option lets you choose when and how you want to receive your money, making it ideal for all kinds of goals. So, visit their website and learn more about it today!
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