Jasmine and Lily were inseparable pals but shared the same dream of securing their family members. In a country like India, where the financial vertical is as diverse as its culture, they knew that making the right investment choices was crucial. One bright morning while going through a financial newspaper, they stumbled upon ULIP and became curious to understand what it was and its best practices.
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The Importance of ULIP Plans
ULIP or unit linked insurance plan is a unique financial product that combines insurance and investment, offering a dual benefit. Such plans offer a life cover while permitting you to invest in distinct funds such as debt, equity, and a blend of both. Listed here are some attractive reasons for investing in a ULIP plan –
With ULIPs, you can invest in the equity markets, which helps you to potentially earn higher returns than conventional insurance policies.
According to Section 10 (10 D) and Section 80 C, the proceeds received, and the premiums paid, both are eligible for tax benefits.
ULIPs endow both benefits – investment opportunities and life insurance cover in a single scheme.
Flexible investment options
You can choose from a range of investment funds based on your risk appetite and financial goals.
You can switch between different fund options to align with your changing financial objectives.
ULIPs offer transparency in fund performance, allowing you to track your investments easily.
Most ULIPs offer partial withdrawal options after a certain lock-in period.
The power of compounding works wonders in ULIPs, especially when held for the long term.
ULIPs enable long-term wealth creation, ideal for financial goals like buying a house or funding your child’s education.
You can enhance your coverage by adding riders like critical illness or accidental death benefits.
You can invest systematically through systematic investment plans (SIPs) to avoid market timing risks.
ULIPs allow you to set specific financial goals and invest accordingly.
ULIPs come with a lock-in period, encouraging disciplined investing.
ULIPs instil financial discipline due to regular premium payments.
They provide a seamless way to pass on wealth to your heirs.
Best practices in ULIP plan selection –
Now that Jasmine and Lily were convinced of the benefits of ULIPs, they delved into the best practices for choosing the right plan –
Evaluate your risk appetite by factoring in parameters such as your income stability, investment experience, age, and income. Based on this assessment, you can choose the investment funds that align with your risk appetite. If you’re risk-averse, you may opt for debt-oriented funds, while those comfortable with risk can explore equity-oriented funds.
Set clear goals
It is essential to have a thorough understanding of your financial goals before beginning a ULIP investment. Whether you are looking for retirement, wealth creation or saving for your kid’s higher education, defining such goals will help you in making proper investment decisions. Your goals will decide parameters like premium amount, policy term and the fund type you must invest in.
Different ULIP providers offer varying premium rates. It’s essential to compare premium costs among several insurers to find competitive rates that fit your budget. Keep in mind that a higher premium may provide more coverage and investment opportunities, but it should be manageable within your financial constraints.
ULIPs come with various charges, including premium allocation charges, fund management charges, and mortality charges. Understand how these charges are structured and how they impact your overall returns. Some ULIPs may have lower charges, making them more cost-effective in the long run.
Before selecting a ULIP, research and analyse the historical performance of the investment funds offered by the insurer. Look at factors like the fund’s past returns, volatility, and consistency. A well-performing fund can significantly impact your returns over the policy term.
ULIPs typically have a lock-in period, during which you cannot withdraw funds without penalties. Be aware of the lock-in period associated with your chosen plan, as it affects liquidity. Longer lock-in periods may require careful financial planning to ensure you have access to funds when needed.
Diversify your ULIP investments across different fund options to spread risk. Diversification can assist in meeting the market volatility impact. Based on your risk appetite level, you can allocate funds to debt, equity, or a mix of both.
Evaluate the available riders carefully and select those that align with your specific needs. Riders can enhance your coverage by providing additional benefits like critical illness or accidental death coverage. However, they also come at an extra cost, so choose them judiciously.
Consider the flexibility of switching between funds within your ULIP. Over time market conditions change and the funds that well-performed previously might not be the best choice. The potential to switch between funds permits you to adapt to the evolving market dynamics and optimise your returns.
Claim settlement ratio
Check the insurer’s claim settlement ratio, which indicates the percentage of claims settled by the company. A higher ratio signifies a more reliable insurer with a smoother claim process. It’s essential to choose an insurer with a good track record to ensure hassle-free claim processing for your beneficiaries.
Select a policy term that lines up well with your financial goals for the long term. Policy terms can endow more time for your investments to enhance, but they might even need an extended commitment. Make sure your policy terms match well with your investment horizon of your financial goals.
Premium payment frequency
Select a premium payment frequency that suits your cash flow and financial discipline. ULIPs offer flexibility in premium payment frequencies, such as monthly, quarterly, semi-annually, or annually. Choose an option that aligns with your income cycle and budget.
Assess the quality of customer service provided by the insurer. Good customer service ensures that your queries, concerns, and requests are addressed promptly. It’s essential to have a responsive and reliable insurer, especially during the policy tenure.
Online or offline
Decide whether you prefer to purchase your ULIP online or offline. Online buys are often highly convenient and might endow additional benefits such as lower fees. Assess your level of comfort with digital payments and select the method that matches you best.
Post investing in a ULIP plan, constantly assess your investment portfolio and remain informed regarding market developments. Keep constant track of the performance of your fund and make the required adjustments to line up with your goals. Staying proactive in ULIP management can assist in enhancing returns.
As Lily and Jasmine, both followed the above best practices, they searched for the best ULIP plan that matched their aspirations. With their ULIP scheme in place, they were not just securing their future but even enjoying the journey of witnessing financial growth and upliftment.