Flexibility is one of the hallmark features of ULIPs. These plans let you tweak your investment strategy with changes in market conditions and financial goals. Based on your needs, you can alter your premium allocation from aggressive equities to more stable and conservative debt funds. The feature of premium redirection in ULIPs facilitates such modifications.
What does premium redirection mean?
Your insurer invests a part of your ULIP premiums into different asset types as per your tolerance for market volatilities. You can select from equity, balanced, and debt funds. The returns at the end of the ULIP tenure depend on how the funds perform during this period.
When you buy the ULIP, you have to decide the percentage of your premium you want to direct into the different fund types. However, with changing economic scenarios or financial needs, you can choose to change how you want to divide your premiums across various asset classes.
Premium redirection in ULIPs lets you alter the funds where you want to invest your future premiums. It also allows you to modify your future premium allotment percentages over the various fund types. With premium redirection, your insurer distributes your incoming investments to the different fund units in the new ratio you choose. Your earlier investments will remain in the same funds you currently hold.
When should you redirect your premiums?
To change from equity to debt funds. You can start with a growth-based investment approach. But as you reach retirement age or the time to fulfil your financial targets approaches, you may prefer to preserve your wealth. At this point, you might want to shift to low-risk debt funds.
Otherwise, the market might pass through a short-term volatile phase. Security prices might start to decrease. Under such conditions, you might want to prevent erosions to your fund value. Then you can focus your investments towards fixed-income options for better returns.
To explore better-performing funds.
You may want to start investing in new funds. But you may also want to keep your existing fund composition intact. You can then allot your upcoming premiums into new funds with premium redirection. Your current shareholdings will not change.
To exit from debt funds.
When you first venture into the capital market, you may favour a cautious approach with the security of debt funds. Otherwise, the markets might have been slow, and debt markets offered better prospects. Later, when the market bounces back, you may wish to tap into the profit-potential of equities.
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Terms and conditions for premium redirections
- You can redirect your premiums after one year from the purchase date of the ULIP.
- Your insurer decides the number of times you can redirect your premiums in a policy year.
- The charges levied on premium redirections are typically nominal.
Conclusion
Fluctuations in the capital market are usual. But premium redirection in ULIP helps you adjust your investments as per market outlooks. Thus, ULIPs provide opportunities to fine-tune investment strategies, survive slowdowns, and maximize your gains through varying market cycles.
If you want to create wealth utilizing ULIPs flexibility, you can consider the policies offered by Kotak Life Insurance. Some of the lucrative options include:
You can study the brochures detailing each policy’s advantages online and select a plan to match your investment objectives.
