In the world of investing, taking the correct measures is key to wealth creation in the long run. However, those thinking about the long-term should also take the factor of unpredictability into account, especially if they are seeking financial security. This is where the need for ULIP comes into play and this article briefly goes over the steps you need to follow to find a ULIP plan that suits your financial needs.
What is a ULIP and what are its benefits?
The term ULIP stands for Unit-Linked Insurance Plan, which is a unique financial instrument that blends the aspects of life insurance coverage and investment. With a ULIP, individuals are required to pay certain timely fees as policy premiums, which can further be utilised in building a life cover and as investments in funds (equity or debt or a combination of both) of your choice. On maturity of this plan, you will get the fund value which includes the amount invested as well as the earned returns. On the other hand, in case of your unfortunate death, your nominee will gain the plan’s death benefits.
There are tons of benefits to opting for a ULIP in India, including;
Multiple investment choices: A ULIP allows individuals to invest in a variety of fund options based on their risk appetite, such as equity funds where there is a higher risk, debt funds where both the risk and return are lower or balanced funds where the risk is optimised between the two.
Tax benefits: Another crucial benefit of investing in a ULIP is the tax benefits that you can avail of as per Section 80C and Section 10(10D) of the Income Tax Act, 1961.
Flexibility: Alongside multiple investment choices, ULIP allows investors to swiftly switch between different funds according to the changing market scenarios and their risk appetite.
Emergency funds: The partial withdrawal feature under the ULIP lets individuals make use of the money from the accumulated funds to cover expenses arising out of emergencies or unfortunate events.
How to select the right ULIP for your needs?
Now that you have a basic idea about ULIP and some of its main perks, you can consider the following pointers to make a sound judgement when choosing a ULIP for your needs in India;
Scrutinise your personal goals: Prior to choosing a ULIP, make sure to understand and carefully scrutinise your personal goals, which include the aspects of wealth creation, life after retirement, specific goals like buying a house, and so on. Depending on this factor, you can select the type of ULIP you want to invest in.
Compare different ULIPs: An important step to finding the right ULIP for your needs is to compare different plans and their specific features and perks. This can help you make the most out of your ULIP by getting the optimum death or maturity benefits.
Take your risk appetite into account: When considering a ULIP, take your risk appetite with respect to your investment focus into consideration. For instance, individuals focused on long-term financial goals with lower risk are often inclined towards debt ULIPs.
Consider strategy-based plans: If you have particular goals to achieve, opt for ULIPs that best serve that demand. For example, a ULIP for retirement focuses on wealth creation to make your post-retirement life comfortable.
Check the insurer’s solvency ratio: The solvency ratio of an insurance company is a key factor that gives us an idea of how likely the insurer might be able to honour its claims in the upcoming times. The IRDAI-mandated solvency ratio for insurance companies in India is at least 150%.
Check the insurer’s CSR: Similarly, before investing in a ULIP, make sure to find out the claim settlement ratio (CSR) of the company. Generally, a higher CSR indicates the reliability of the insurer in terms of settling claims.
Go through the plan performance: A wise step to take when choosing a ULIP is to review the plan’s recent historical performance. The data from the last three to four years should give you sufficient information to measure its performance.
Use a ULIP calculator: Use an online ULIP calculator to find out whether your preferred ULIP plan is suitable for your financial needs or not. A ULIP calculator takes factors like plan tenure, premium, return rate, etc., into account and gives estimates on expected returns, giving investors an idea of how their assets may grow with time.
Conclusion:
When choosing a ULIP in India, one should consider a number of factors to find a plan that helps them meet their financial goals within their preferred risk appetite. It is crucial to learn and understand everything there is to Unit-Linked Insurance Plans in order to make the right choice when making this investment for the future.
