Important Parameters To Consider While Purchasing A ULIPs

In an uncertain world, having a financial plan to secure your future is critical. This is especially important in light of last year's events, which saw over 2.7 million people worldwide succumb to the deadly Covid-19 pandemic. Closer to home, India has already experienced over 11 million infections, with nearly 1.6 lakh reported deaths. To make matters worse, Covid-19 cases are on the rise once again. 

In today's world, it is critical to have a financial plan that not only secures you financially but also protects your family in the event that you are not present. While the latter can be accomplished by purchasing a life insurance policy, the former can be accomplished through long-term wealth creation.

However, there is a way to accomplish both of these objectives at the same time, and that is to invest in a Unit-Linked Insurance Plan, abbreviated as ULIP. A ULIP is a hybrid investment product that combines the individual's investment as well as insurance needs. The policyholder's premium is invested in funds of their choosing, which could be an equity fund, a debt fund, or a combination of multiple fund options. Not only is it a popular long-term financial planning tool, but it also provides significant tax advantages under Section 80C of the Income Tax Act of 1961.

Important Parameters To Consider While Purchasing A ULIPs

Below are a few parameters to consider while purchasing a ULIP:

• Premium Payment Flexibility

Different plans have different premium payment options. The policyholder's payment frequency must also be considered. While some prefer to pay annually, others prefer to pay monthly. Others, on the other hand, seek the option of a one-time premium payment with no ongoing obligations.

Persistence is the key to reaping large returns from ULIPs. It is not advisable to surrender the ULIP immediately after maturity or realization of the lock-in period. People must understand the value of ULIPs as long-term financial instruments rather than investing in them for short-term gains. Furthermore, paying ULIP premiums establishes a habit of regular and timely savings.

• The Number Of Switching Options Available

Most ULIPs offer the unique benefit of switching between fund options based on market understanding and risk tolerance. These plans are more profitable because they provide greater levels of transparency and flexibility when compared to other investment options. Some ULIPs limit the number of switching options to four, while others allow an unlimited number of switching options. The option to switch funds gives the investor more leeway in deciding between alternative funds after a thorough examination of the performance of existing investments. Funds do not have to be transferred completely; insurance companies also allow for partial transfers of funds that would result in higher yields.

• ULIP Cost

A ULIP has various costs such as mortality, allocation charges, fund management charges, and so on. The fund management fees have been set at 1.35 percent. Because ULIP charges are offset by returns, it is critical to select a low-cost ULIP. Consider two plans, one with a total cost of 1.5 percent and another with a total cost of 2.5 percent. On a monthly premium of Rs. 5,000, the policy with a 1.5 percent cost saves approximately Rs. 50,000 over a ten-year period.

• Keep An Eye Out For The Charges

Different insurance companies have different fee structures for their ULIP plans. Some of the most common fees associated with ULIPs are as follows:

• Policy administration fees

• Premium allocation fees

• Top-up fee

• Charges for Mortality

• Switching fees

• Fund management fees

• Rider fees

• Premium discontinuance fees

It is important to note that not all insurance providers levy all of these charges, and some even refund the amount charged under certain headings.

Conclusion

Before purchasing a ULIP, understand the features of all existing options online. Low cost may not be the only criterion for selecting a fund. Examine the fund's objectives thoughtfully and thoroughly, as well as the advantages and past performance, though historical results are not necessarily an indication of performance.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.