What are the things to be noted before investing in a ULIP plan?

Unit Linked Insurance Plans or ULIPs are insurance plans that provide its investor with both the benefit of insurance, as well as that of an investment. Additionally, you as an investor have the freedom to choose between the type of fund. Namely equity, debt, or a mixed fund based on your risk-taking ability. 

ULIPs not only help cover you and your loved ones financially but also ensure that you enjoy capital appreciation over a long period of time without the hassle of managing the capital yourself. That being said, this article brings to you key factors and considerations to be aware of as an investor looking to get a ULIP.

Why Invest in ULIPs?

ULIP combines the best of having insurance and investment. In addition to creating a financial safety net for your family in your absence, you get to reap the benefits of capital appreciation without having to take heavy risks. Hence, here are a few pointers on why ULIPs may be a good choice-

• Flexibility in investment- ULIPs provide a variety of schemes to you as an investor, depending on your risk-taking ability. Investors with a higher risk tolerance may opt for an equity-based investment. Whereas if you are looking for steady appreciation of your capital, then investing in debt instruments could be considered.
• Tax Benefits- ULIP premiums help offer income tax benefits. That is, the premium amount paid can be deducted from your overall income to reduce the net taxable income for a given financial year.
• Liquidity- In the case of emergencies, ULIP allows you to partially withdraw your money to meet any unforeseen financial requirement. 

How Do You Choose ULIPs Best Suited To Your Needs?

Being a popular investment, each ULIP has its own set of features and benefits. Hence, choosing a ULIP can be quite a task. Thus, the following can be factors to consider while choosing a ULIP to invest in.

• Define The Purpose Of Investing In ULIPs

As with any investment, it is key to set financial goals prior to investing. Doing so will bring you clarity with regard to the investment decision. At the end of the day, it is a matter of risk & reward. Hence, knowing your risk appetite and defining your financial goals help.

• Choose Optimum Coverage

Since ULIP also includes life insurance coverage, when choosing a plan, you would need to keep in mind the future needs of your loved ones. Assessing your family's needs and costs would help you choose an appropriate plan. This will help make your family financially secure in your absence.

• Policy Charges Involved

ULIPs associate themselves with a host of charges. These can be in the form of premium allocation charges, fund management charges, and so on. It is key that research is done before buying the plan. Ideally, policies with lower charges should be preferred. 

• Understand the Features And Benefits

Different plans offer varying features and benefits. As an investor, it would fall on you to be aware of the features and benefits offered by the plans available in the market. Doing your research can help you weigh the pros & cons. This makes choosing a ULIP that is best suited for you easier. 

• Claim Settlement Ratio

One of the key factors you could consider before choosing a ULIP from a provider is their claim settlement ratio. The claim settlement ratio denotes the percentage of claims that have been settled by the insurance provider. Ideally, the higher the percentage the more the credibility of the insurer. 

• Premium Funding Benefit

Many of the best ULIPs in the market have a feature that ensures your policy does not stop after you die. A policy with this feature will cover all premiums that remain to be paid by you even after your death. The policy is continued till maturity. The importance of such a feature comes into the picture when planning for specific goals that are time-sensitive, namely your child’s education, and your child’s marriage to name a few.  

Conclusion

When it comes to investments of any kind, the earlier you start the better. Opting for a smart savings plan allows you to put your money away for a rainy day while allowing you to build a corpus to invest in the future. Insurance as a financial instrument is created with the intent of allowing you to live with a sense of peace. With schemes such as ULIPs available in the market, both you and your family get the benefit of a financial safety net. 

Also Read: What to know about ULIPs before investing in them?

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