The combination of investment and insurance makes ULIPs quite a popular choice in India. But when deciding, most people only focus on the returns a ULIP can generate. While the returns are important, other factors that you must consider include.
A life insurance policy in itself is one of the best ways to offer financial protection to your family in case of your untimely demise. You pay regular premiums, and in return, the insurance provider insures your life. But with different types of life insurance policies, like pure term insurance, a policyholder is not able to earn any extra returns on their premiums.
This has made ULIPs a popular choice in India. It combines investment with insurance and allows you to earn market-linked returns while also offering life protection. But while the returns are one of the biggest reasons for purchasing ULIP, one should look beyond what the plan can generate when making a decision.
Here are five other factors that you should consider before investing in ULIP-
- Policy Coverage
ULIP is primarily an insurance product which assures financial protection to you and your loved ones against uncertainties. Generating returns is the secondary objective here. But most new investors are only concerned about the returns-generating ability of the plan.
If you wish to purchase ULIP for the financial protection of your family, it is paramount that you check the coverage amount offered by the plan. It should be adequate so that your family can live a financially secure life without having to change their lifestyle.
- Risk Appetite
With ULIP, you can choose to invest inequity, debt, or balanced funds based on your risk appetite. While equity funds can generate higher returns, they also come with a considerably higher level of risk as compared to debt funds. Balanced funds combine equity and debt components, and the returns are generally higher than debt funds but lower than equity funds. So, when selecting a ULIP, focus on things like your age, dependents, income, etc. to make the right decision.
- Premium Payment Frequency
You also get several premium payment options with most plans. You can either pay the entire premium as a lump sum amount or go for a regular premium option. There are also some plans with limited premium payment option where you are only required to pay premiums for a certain number of years. Focus on your current and future needs with regards to the affordability to pick the right premium frequency.
- Additional Charges
ULIPs also have some extra charges, most of which can vary between plans and insurance providers. The important costs you must be wary of include the premium allocation charges, fund management charges, policy administration charges, and surrender/mortality charges.
Try to understand what these charges are and do compare the average charges of popular plans before making the decision.
- Fund Switching Flexibility
One of the biggest benefits of investing in Unit Linked Insurance Plan is that you can switch between the funds you have invested in. However, there are generally a fixed number of free switches in a year beyond which you will be required to pay a switching fee. Do check the free switches and switching fee and make sure that the switching process is simple and hassle-free.
Awareness is the Key to Right ULIP Selection
As you can see, there are several other factors apart from the returns that are very important for ULIPs. Know more about these points so that you are fully aware of the things that matter when selecting a ULIP for your investment.