Things To Consider Before You Purchase An ULIP

Parameters to Consider Before Purchasing an ULIP

An ULIP is a unit linked insurance plan with dual benefits of an investment and life insurance policy. The life assured has to pay the premium on the basis of the frequency chosen at the inception of the policy, this premium is further divided into 2 parts. There are 4 types of ULIPs to achieve your long term goals namely ULIPs for long-term wealth creation, ULIP Pension Plans, Child ULIP plans, and ULIP for medical requirements. There are various things to consider while purchasing an ULIP, these factors are discussed below-

Parameters to Consider Before Purchasing an ULIP

Before committing to an ULIP as a long term investment, you might want to consider the following pointers-

1. Credibility of the Insurer

The life assured has to take the responsibility of checking the credibility of the insurance company before purchasing the ULIP. ULIPs are long term commitments, you have to be sure if the insurer is able to provide for you in the time of emergence financial need. You can check the past records, customer reviews, or articles about the insurance company beforehand.

2. Charges Involved

In an ULIP plan, the insurance company levies some types of charges to its policyholders. The names of the charges are policy administration charges, premium allocation charges, mortality charges, fund management charges, switching charges, top-up charges, and premium discontinuance charges. Read the brochure of the policy to know more about the charges involved in the plan, opt for a plan with minimal charges.

3. Risk Appetite Involved

As a part of your premium is directed towards the investment avenue of the ULIP, you must think wisely before choosing the fund options provided by the insurer. Each fund option has a range of allocating the premium in mainly three types of funds i.e equity funds, debt funds and balanced funds. The equity funds involve the most risk but the returns are also high, debt funds involve moderate risk with moderate returns while the balanced funds involve low risk with moderate returns.

4. Maximum Sum Assured

ULIPs provide sum assured to the nominee in case of an untimely demise of the life assured during the policy term. Before purchasing an ULIP, you must opt for the maximum sum assured as this amount will be quite essential to your family in your absence. Most of the insurers provide unlimited sum assured (subject to underwriting). You can opt for the sum assured beforehand and calculate the returns via an online ULIP return calculator to estimate your returns.

5. Premium Payment Term and Lock-in Period

It is very essential for the individuals to know about the premium payment term and lock-in period of the policy beforehand to collaborate the returns of the investment and your goals. ULIPs usually have a lock-in period of 5 years as an ULIP needs a minimum 5 years to properly yield the returns. After the end of the lock-in period, you can also have the facility of partial withdrawals to meet emergency fund requirements.