Post the Insurance Regulatory and Development Authority (IRDA) introduced new rules, a Unit Linked Insurance Plan (ULIP) has attracted a lot of attention in the Indian market. A ULIP plan is a mix of investment and insurance under a single plan. Due to its dual benefits, many of you might be willing to walk down the investment road without worrying about the market fluctuations.
Although a ULIP plan has gained popularity in the market, you might be unaware about specific parameters of ULIPs. Before you purchase a ULIP plan, you should know the features, benefits, and premiums of the ULIP policy. Apart from this, you should consider various other things like ULIP funds, its charges, and so on. Let’s go through the top five things mentioned below, which you need to understand before you purchase a ULIP policy for you:
A ULIP plan can offer life coverage to protect your loved ones financially in your absence. It can depend on the sum assured value to maintain their standard of living after your demise. Therefore, you should consider their financial needs before selecting a sum assured value. As a policyholder, you can choose the minimum sum assured limit that can be 7 times of the annual premium after the new guidelines.
Premiums can be an essential element of a ULIP policy. Typically, the premium is channelled in two directions: life coverage, and ULIP funds. As the policyholder, you can choose to pay the premium quarterly, monthly, half-yearly, or annually based on your convenience. When you are unable to pay the premium within the selected time, your insurer can provide you with a grace period of 30 days to repay the amount. If you are unable to pay the premium amount during the grace period, your ULIP policy would lapse.
Today, a ULIP policy can be available at low costs after being severely criticized in the market. The IRDA has availed ULIP policies at relatively lesser charges. When you purchase a ULIP policy, you can find these four most common charges given below:
- Policy administration charge
A policy administration charge can be deducted for the administrative expenses that are paid for the maintenance of the ULIP policy.
- Premium allocation charge
A premium allocation charge can be deducted from the premium that is paid by you.
- Mortality charge
Mortality charge can be deducted for the provision of life coverage.
- Fund management charge
Fund management charges can be deducted for the management of equity funds and debt funds.
A ULIP policy is a flexible investment option, which can allow you to select the desired type of fund based on your risk appetite. Typically, you can choose between equity funds and debt funds. The choice of your funds can impact your returns. For instance, if you select an equity fund, you might receive high returns and vice versa. If you are unable to manage the market risks, you can switch to debt funds to secure your invested capital from market volatility.
A ULIP policy can allow you to diversify your investment portfolio. Although a specific proportion of a ULIP plan can be investment-based, you can control the impacts of market performance on your invested capital. Moreover, you can choose the ULIP funds based on your risk tolerance and investment goals. If you can afford the market risks, you can choose equity funds to obtain high returns. If you have a low risk, you can opt for debt funds and receive relatively low returns than equity funds.
In a nutshell, a ULIP policy can be an essential part of your investment due to its many benefits. It is a flexible, affordable, and convenient option for investment. However, see to it that you compare multiple ULIP plans, select a reputable company, and choose the right type of ULIP plan based on your risk appetite, investment goals, and family’s needs. Moreover, check the past ULIP performance of the funds before you invest in the ULIP funds.