Confused About How to Choose the Right ULIP? Read This

Investment plans are a reliable method to build one’s financial corpus over a determined time-period, suited as per the policyholder’s necessities. Investment plans like ULIP, although offered of all types follow a basic pattern where the investor makes nominal premium payments into a fund, where these accumulate over time. People with cost-intensive goals such as Higher Education, Marriage, Real Estate purchases and Retirement should begin their wealth accumulation journey by choosing an investment plan best suited for their goals. 

Basic life goals such as education, marriage, a stable retirement should not exhaust a person’s finances at their most vulnerable point in life; knowing this reality insurance providers have given investors access to plans that promise and grow on their investments in a manner and frequency best suited to them.  In an effort to streamline insurance and investment practices, and to effort to amalgamate these two essentials, investment providers introduced ULIP plans. 

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So, what is the ULIP meaning? 

A Unit Linked Insurance Plan is an investment-cum-insurance instrument that is driven towards fulfilling a dual purpose for the policyholder. A ULIP plan is maintained by premiums paid by investors, the frequency of these payments can be monthly or annual. The basic feature of a ULIP plan is that it uses the paid premium and allocates a part of it towards investments and the rest towards life insurance coverage. The best ULIP plans are ones that are generally market-linked, making them moderately risky. However, an investor may choose between different investment options as per their investment portfolio requirements and risk appetites.

The units stand for the allocated units to the investor which stand for their market-linked investments, similar to equity mutual finds. These units are converted into a corpus on the basis of the NAV that is allocated to them at the time of conversion. 

Now that the basics of a ulip plan have been covered, let us look at how to choose the right ulip plan that is best suited to your investment needs:

1. Financial Goals

The best ULIP plans in India are built on the assurance of sizeable returns with moderate risk as compared to direct equities. Therefore a ULIP plan can be an ideal solution for investors who have large expenses or monetary commitments in the future such as a child’s higher education, their marriage, travel and retirement. An investor should opt for ULIP plans that allow for a steady capital accumulation for future use. 

2. ULIP Features

The first and most important step to investing in any investment or insurance plan is to carefully read all features, requisites, costs, fund choices, insurance coverage metrics, projected returns and any additional charges mentioned within the ULIP plan. One should carefully read through all these details so they are prepared for any costs or liabilities that may arise at the time of investment, or for any features they can additionally avail within the policy. 

3. ULIP Charges

ULIP plans often have additional costs that may not be apparent at the time of choosing a plan, therefore one should consider costs such as premium allocations fees, management fees, initial charges, surrender charges and service charges at the time of looking at ULIP plans. Additionally, many ulip plans have lock-in periods or entry and exist charges that may be levied from an investor. Therefore an investor should check for these charges within the plan in the event they have limited investment horizon.

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4. Desired Investment Period

An investor will be able to pick the best ULIP plans for their requirements if they have clarity in regards to their investment portfolio and horizons. Since ulip plans have lock-in periods and are market-dependent investment plans, an investor should choose the plan that fulfils their goals within their desired investment period. 

However, today, for an investment to be financially viable at all stages in life, it needs to be suited to the economic bearings of the investor, and also offer the options for customization.

5. Life Cover

Before investing in ULIP plans, an investor should duly understand the features of their plan. ULIP plans are generally long-term insurance plans, therefore they are beneficial to potential policyholders seeking adequate coverage for their dependents. Foreseeable dependents such as children and spouses should be considered before picking ULIP plans. 

6. Tax Benefits

The premiums paid and the payout thus earned from a ULIP plan are exempted from taxation under Section 80C, 80D and 80CCC of the Income Tax act, 1961. The capital growth accrued throughout the policy term along with the maturity amount is not taxable. If a policyholder chooses to switch from a direct equity to a debt fund, they can do so without having to pay taxes.

The central goal of an investment plan is to provide and afford visibility for the investor. Additionally, they are also tools for investors to realize their goals and prepare themselves from any financial and emotional stress in the future in a planned and regulated manner.

 Investment plans are also stepping stones for investors on their journey of building a strong investment portfolio, a ULIP plan is an ideal way to balance between one’s investment and insurance needs. ULIP plans are great choices to start your investment journey and make the best of your hard-earned money, reach out to our financial advisors and choose the best ulip plans.