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What are the things to consider before buying ULIPs?

What are the things to consider before buying ULIPs?
  • 2nd Mar 2022 |
  • 365

In these very uncertain times of a worldwide COVID-19 pandemic, it’s critical to have a monetary plan in place that will not only safeguard you personally, but also your loved ones in the event of your untimely and unfortunate demise. While the latter can be addressed by acquiring an insurance plan, the former can be accomplished by concentrating on long-term wealth accumulation schemes. Both of these objectives can be met by investing in just one product, that is - ULIP.

The ULIP full form stands for Unit Linked Insurance Plans. It is a mixed investment product that seeks to satisfy both investing and insurance requirements. The policy premium is invested in the policyholder’s pick of funds, which can span across numerous types of assets. Section 80C (ULIP under 80C) and 80 CCD of the IT Act of 1961 provide significant tax benefits for this popular long-term financial planning product. The maturity earnings or the lump sum payout for insurance with a premium of up to ₹2.5 lakh are tax-free under section 80 CCD. Here are some things to keep in mind before investing in ULIPs:

5 Things to keep in mind when making ULIP investment decisions

Optimum Payout

The sum assured is a lump-sum payment made to the policyholder’s beneficiary in the event of the policyholder’s death while it is still in effect. This is specified at the point of purchase. It’s best to choose a substantial sum assured because this money will be utilized to care for the policyholder’s dependents in the terrible event of their unfortunate death. You must also keep a check on ULIP 80C benefits.

Additional Costs

Existing governance charges, funds and investment charges, management charges, top-up costs, mortality costs, changing fees, rider charges, premium termination charges, and so on are some of the most typical charges linked with ULIPs. Not all insurance companies impose all of these fees, and some even refund the amount collected. Before contacting an insurance company, make sure you understand the many sorts of fees that are associated with these investments.

Insurer Authenticity

Because ULIPs are long-term investments, it is critical to investigate the insurance provider’s trustworthiness and track record before making a purchasing choice. Insurance firms are heavily regulated, and the supervisor ensures that all firms adhere to the same set of solvency standards. The solvency ratio is a good predictor of an insurer’s financial health because it evaluates an organization’s capacity to satisfy long-term financial commitments.

Asset Allocation

The asset selection for the ULIP plan should be determined by the policyholder’s risk tolerance. Debt funds are suitable for risk-averse policyholders, whereas equities are suitable for ambitious investors. A balanced approach can also be taken by depositing in a fund that provides a hybrid option, i.e., a mixture of both debts and equities.

Comparison

Ensure that you compare ULIP plans and their features and evaluate all of the goods offered before purchasing one. Analyze the products’ fundamental funds, including their objectives and track records. However, keep in mind that the funds’ previous success is not indicative of their future success.

ULIP plans on the market might be a wonderful way to meet your insurance and financial needs while also assisting you in achieving your objectives. However, before buying in a ULIP, take the time to understand all of the variables involved so you can make an informed decision.

- A Consumer Education Initiative series by Kotak Life

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