Before you make any decisions related to investment, you should ensure that you have done thorough research on the same. If you are looking for good returns, then some important points should be kept in mind. One of the most important decisions that you will make would be regarding the kind of product you should buy. If experts are to be believed, a product that offers dual or multiple services together is the right choice. For those looking to insure their life with a policy and invest in the market, a would be very suitable. To help you choose the right ULIP policy for your needs, we list down some vital points.
What is a ULIP policy?
Understanding ULIPs is important to be able to secure the right policy for yourself and your loved ones. When you pay the premium of your ULIP policy, the insurer uses the amount for two purposes – to create your life insurance corpus and to invest in the financial instruments of your choice. While the life insurance aspect of your ULIP is quite easy to understand, the investment portion can get a bit complex. There are a variety of funds to choose from, with the broad options being equity funds, debt funds, and hybrid funds. The kinds of fund options you choose highly influence the returns from your ULIP plans in the long run.
What to ensure when choosing your ULIP policy
The right amount of fund options
As mentioned above, one can invest in various fund options with their ULIP policy. These fund options suit a variety of risk profiles. For the risk-averse individuals, there are debt options. For those with a high risk appetite, equity fund options are available. However, within these options too, one must look for a variety of fund types. For instance, equity funds should have mid-cap, large-cap, and multi-cap stocks, among others. Having these options helps you reduce the losses on your fund performance as the risk is spread wide across investments.
Free fund switches
Perhaps one of the most important features of a ULIP is that the investor can switch their funds from one asset class to another depending on their needs. If your funds are underperforming in a particular asset class, then you can shift those funds to another asset class. Now, many insurers often have a certain number of switches in a year beyond which they may start charging you. To avoid such , you must choose an insurer that offers free switches for as many times as you want. This helps you avoid any potential losses that your funds may have incurred by staying in an underperforming fund option.
Extensive life insurance coverage
Many people tend to overlook the life insurance coverage of their ULIP policies. However, this is better to be avoided, especially if your ULIP is your primary life policy. When buying the plan, ensure to review the terms and conditions under which your beneficiaries will receive the sum assured amount. The coverage should be highly extensive and offer your loved ones the support they need in your absence.
A substantial amount of riders
With your ULIP policy, you can buy riders to amp up the level of financial protection you have. For instance, one can opt for the accidental death rider, which provides an additional lump sum amount in case the policyholder passes away in an accident. If the accident causes severe permanent disabilities, then the accidental permanent disability rider can be of help. Though these riders do not affect the , they surely help you in times of financial difficulty.
Minimal ULIP charges
When buying a ULIP policy, one can expect a few charges, such as premium allocation charge, premium redistribution charge, policy administration charges, and so on. Some of these are levied only if the policyholder undertakes certain decisions. Some charges, like the fund switching charge mentioned above, are optional and depend on the insurer. Before you sign any ULIP policy, ensure to check the various charges that the insurer levies. Ideally, there should be a minimum number of charges.
Buying a ULIP is a long-term investment. Therefore, the steps mentioned above should be kept in mind, along with some advice from a financial expert.