What is the one thing you can predict about life?
That it will change and evolve every day.
Then it only makes sense that you prepare for all changes. Everyone knows that they will marry, have children, fall sick, care for aging parents, age, retire from jobs, and so on. The wise thing to do is to focus on that one important aspect that can make these situations easy to manage. That aspect is your financial health.
A Unit Linked Investment Plan(ULIP) can ensure that your financial health stays robust enough to fulfill your evolving needs. ULIP provides a unique combination of investment and insurance coverage. Which means you get a double benefit - the creation of wealth plus the peace of mind knowing that your dependents are financially secure.
Basics first: How does a ULIP work?
Like any other insurance policy, you have to pay premiums for your Unit Linked Insurance Plan (ULIP). However, the way the premium is used is different from other insurance policies. The ULIP premium is divided into two parts. One part goes towards your life insurance cover while the other is invested in market funds. Now, a ULIP Investment can be tailored to meet individual needs. Therefore, depending upon your risk appetite you can choose the funds that you would like to invest in. Since one of the ULIP benefits is switching funds, you can alter the risk quotient depending upon age and life stage. Depending upon your financial goal, you can choose the relevant type of ULIP Investment.
However, apart from ULIP returns, there are some factors that one must consider before making a ULIP investment. Here are the top five:
Check and double check
Before investing your hard earned money in any ULIP scheme, first thoroughly vet both the plan and the provider. ULIP Returns are assured in addition to the insurance coverage the plan provides.
Select the maximum sum assured option
Sum assured refers to the lump-sum guaranteed by the ULIP scheme to the nominee upon the premature death of the policyholder. Opting for maximum coverage here will help you protect your loved ones without any hiccups.
Check all print – fine and not so fine
ULIP plan charges differ from one ULIP scheme to another. These include fund management charges, switching charges, mortality charges, and so on. It is important that you have a clear understanding of each and every charge included in your ULIP scheme. Some insurers will levy all and some might levy a few. Make sure you get all information related to your ULIP scheme before you make your investment, whether online or offline.
Consider your risk appetite
One of the key ULIP benefits is that your ULIP investment can be customized to conform to your risk appetite. One part of your premium is invested to aid wealth creation for you. This investment can be made in either equity (high risk), debt funds (low risk), or balanced funds (moderate risk). You can choose the ULIP fund depending upon the risk you want to take.
Lock-in period and term of premium payment
One important consideration before buying a ULIP is the lock-in period, i.e., the holding period during which it cannot be sold or redeemed or in the case of insurance policies, surrendered. Typically, ULIP schemes have a lock-in period of five years but you may earn a surrender value after three years and partial withdrawals could be allowed after five years. In addition to the lock in period, you must also review the premium payment term which refers to the duration for which you pay your premium. Depending upon your plan, you can opt for monthly, quarterly, or an annual premium.
ULIP benefits and returns
IndiaFirst Life offers 4 ULIP schemes that offer multiple benefits:
Maturity benefit: Get the current value of the ULIP fund along with loyalty additions and bonuses, if any.
Death benefit: If the policyholder passes away during the policy tenure, the beneficiary receives the sum assured or the fund's present-day value, whichever amount is higher as ULIP policy benefits.
Wealth creation: The longer you stay invested, the higher the corpus created.
Flexibility to switch between funds: Move your money to meet your financial needs or protect from market volatilities.
Partial withdrawal and top-ups: Post the lock-in period, make withdrawals if you need the money, or top up the fund if you have extra.
Tax benefits: A policyholder is eligible for tax deduction during all three phases: the investment, earnings and withdrawal. A ULIP offers tax saving benefit till the end of its tenure.
A ULIP scheme is a definite method to accumulate significant wealth via market linked investments. With proper understanding and planning, ULIPs can be a valuable addition to a well-rounded financial portfolio.
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