Things to consider before buying ULIPs
As more and more people are getting educated about finance and investment, there has been an increase in the number of investors. Investing your money is great way of growing your wealth for the future. The returns that you get can help you accomplish your goals and let you enjoy a financially secure future with your loved ones.
Among the popular investment instruments that people are opting for is a ULIP. This plan provides you with a great opportunity to increase your wealth substantially. However, as it is common with any type of investment, there are things that you need to consider before investing in ULIPs. What are these things? Read on to understand more about it.
Understanding the meaning of ULIP
What is a ULIP? It is a type of life insurance policy that provides the double benefits of investment and insurance under the same policy. The premium paid towards the policy is used for financing both these components. One part of your premium is used for investing in funds, such as equity and debt funds, which are offered under ULIPs. Each fund carries a different risk factor and offers different returns. Your investments are made on the basis of your risk appetite and goals.
The other part of the premium is used for the insurance cover which is provided to your family. Under this cover, they would receive a death benefit if you were to pass away suddenly during the term of the plan. They would also receive maturity benefits once the plan matures.
What are the things to consider about ULIPs?
Before you invest in a ULIP, you need to be aware of a few aspects about the plan, which are listed below:
- The premium
The premiums paid towards the policy that lets you enjoy the various benefits. The premium is used for both investment and insurance. It is advised to invest in ULIPs at an earlier stage so that you will have to pay a lower premium, as compared to a higher premium when you invest in it at a later stage of life. ULIPs have a flexible premium payment method. You can either opt for monthly or yearly premium payments or a one-time lump-sum payment as well. The premium option you select should be based on your financial strength. One other factor about premiums is the duration of the plan. A long-term plan makes it easier to evenly spread out your premium payments without the risk of any financial instability. A short-term plan might require you to pay more.
- The funds
In ULIPs, you have the option of investing in different types of funds. The funds that you can choose to invest in a ULIP are: equity funds, debt funds, fixed markets, and liquid markets. Each type of fund offers different rate of returns and carries a different risk factor depending on the nature of its investment. If you want greater returns, you can opt for equity funds. If you want consistent returns, you can invest in debt funds. Fixed and liquid markets also offer consistent returns, but they are lower compared to debt funds.
- The duration of the term
ULIPs are chosen by people because of its ability to provide returns that are good enough to fulfil different goals. However, goals can be either long-term or short-term. Goals such as wanting to buy or build a dream home, planning a trip abroad, or saving for medical emergencies are considered short-term. Goals such as planning for your child’s education and marriage or wanting a financially independent retirement come under long-term goals. Depending on what your goals are, you should choose the duration of the plan accordingly.
These are just a handful of things that you need to consider before you invest in ULIPs. To get a better idea, you can get in touch with your financial advisor. To understand how much money you would be required to invest in ULIPs as per your requirements, you can use the ULIP calculator, which is free to use on your insurer’s website.