Investing in a ULIP plan is an excellent way to get insurance protection and grow your wealth simultaneously. However, to make the most of ULIP, you must choose the plan carefully. Read on to know how to choose the best ULIP plan.
Unit Linked Insurance Plan or ULIP is an innovative financial product that offers the best of both the worlds – insurance protection and investment. Fundamentally, ULIP is an insurance product offered by insurance companies that aims to give you the dual advantage of wealth creation and security against the uncertainties of life. Since it is a market-linked investment product, as an investor, you get an opportunity to profit from the capital market.
When you compare ULIP to other insurance or investment products, you would understand that it is structured uniquely to give maximum benefits to the investors. The past performance suggests that ULIPs have yielded returns of 12% to 15% for long-term investment, which is much higher than the returns offered by bank savings accounts and other traditional investment schemes.
Now that you are aware of what ULIP is, it would help you to know how to pick the right ULIP to accomplish your financial goals.
Get sufficient life protection
ULIP being an insurance product, it provides financial security to your family by extending life cover. The insurance cover ensures that your family does not face any financial hassles even when you are not around. But, to ensure that your family gets sufficient coverage, you must choose the sum assured of the policy wisely. With ULIP plans, typically, 10 times of the premium you pay is used for offering life cover. So, if you have already invested in a complete protection plan, ULIPs can help you get additional coverage.
Determine your investment goals
When you invest in ULIP, it is vital that you plan your investments prudently. No matter what your goal is, be it to build a post-retirement corpus, buy a dream home, you must carefully plan your investment and set a timeline to accomplish the goal. This will help you choose the fund option accordingly. For example, if you are looking to build a retirement corpus, you can invest the majority of the funds in equity funds. But, if your goal is to build a corpus to pay the down payment for your home, it would be better to invest in debt funds.
Assess your risk-bearing capacity
Your ability to bear risks is a critical factor that you must assess while investing in ULIP. The higher the risk-taking capacity, the higher is your gains potential, and vice-versa. When you start investing at a young age, you may not have too much financial responsibility and probably you can afford to take higher risks and invest a higher amount in equity funds.
Eventually, when your financial responsibilities increase, you can use the switch fund options and switch from fund to the other and mitigate the risk.
Be wary of the funds’ performance
When you invest in a ULIP plan, it is paramount that you review the funds’ performance over the past few years. Even if the fund has provided valuable returns in the past, it does not guarantee good returns in the future. So, you must review the fund’s performance across different market conditions. You must also learn to predict how the fund may react during market fluctuations. This will give you a fair idea of the returns you can anticipate. Similarly, you must also examine the insurance providers financial stability and choose the right insurance company by looking at their solvency ratio.
Now that you are aware of the tips to choose the best ULIP, do your due diligence and choose the right plan to accomplish your goals.