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10 Things About Unit Linked Insurance Plans You Should Know Before Investing

Before buying a ULIP plan, it is important to understand all the variables involved to make an informed decision. Read more about what are the things to consider before buying ULIPs.

  • 4,191 Views | Updated on: Jan 10, 2024

Imagine you are embarking on a thrilling adventure through the world of finance. As you gear up for this journey, there is a special roadmap you should be aware of - the Unit Linked Insurance Plan, or ULIP and there are some things you need to keep in mind before choosing the right plan for you and your family.

These things will help you navigate the twists and turns of ULIPs, ensuring you make the most of your financial voyage. So, grab your explorer’s hat and uncover the eleven essential things you should know about ULIPs before you start investing!

In these very uncertain times, it is 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 - ULIP.

What are Unit Linked Insurance Plans?

Unit Linked Insurance Plans, or ULIPs, are a unique financial product that bridges the gap between insurance and investment. These plans offer policyholders the dual benefit of insurance protection and wealth creation through investment in various fund options.

Here are some things to keep in mind before investing in ULIPs:

1. 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. It is best to choose a substantial sum assured because it will be utilized to care for the policyholder’s dependents in the terrible event of their unfortunate death.

2. Additional Costs

Existing governance charges, funds and investment charges, management charges, top-up costs, and mortality costs 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.

3. Insurer Authenticity

As 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.

4. Asset Allocation

The policyholder’s risk tolerance should determine the asset selection for the ULIP plan. 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 equitiesa.

5. Comparison

Ensure that you compare ULIPs 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.

6. Lock-in Period

ULIPs come with a lock-in period, during which you cannot withdraw your funds without incurring penalties. The lock-in period for ULIPs is typically five years, as mandated by the Insurance Regulatory and Development Authority of India (IRDAI). This means that you need to stay invested for at least five years to enjoy the full benefits of your ULIP. However, after the lock-in period, you have the flexibility to make partial withdrawals or switch between different funds.

7. Investment Flexibility

ULIPs offer a range of investment options, including equity funds, debt funds, and hybrid funds. You can choose the funds that align with your risk tolerance and investment objectives. Moreover, ULIPs often allow you to switch between funds during the policy tenure, helping you adapt to changing market conditions and investment goals. It is essential to monitor your ULIP investments regularly and make necessary changes as per your financial strategy.

5 Things to keep in mind when making ULIP investment decisions

8. Loyalty Additions

Many ULIPs offer loyalty additions as a bonus for staying invested for an extended period. Loyalty additions are typically added to your fund value at specific policy milestones, such as the end of the fifth policy year. These additions can enhance your returns over time and serve as an incentive for long-term investors.

9. Partial Withdrawals

ULIPs provide the flexibility to make partial withdrawals after the completion of the lock-in period. This feature can be beneficial in case of emergencies or financial needs. However, it is crucial to understand the terms and conditions regarding partial withdrawals, as some ULIPs have restrictions or minimum withdrawal limits.

10. Free Look Period

ULIPs come with a free look period, which allows you to review your policy terms and conditions after purchase. If you are unsatisfied with the policy, you can cancel it within a specified timeframe (usually 15 to 30 days) and receive a refund of the premium paid, minus any expenses incurred by the insurer. This ensures that you have time to thoroughly evaluate the ULIP before committing to it.

Last Words!

Unit Linked Insurance Plans (ULIPs) offer a unique combination of insurance and investment, but they come with specific features and considerations that investors should be aware of. Understanding the lock-in period, charges, investment flexibility, loyalty additions, partial withdrawals, free look period, and tax benefits is crucial for making informed investment decisions. Before investing in a ULIP, it is advisable to assess your financial goals, risk tolerance, and the specific terms and conditions of the policy to ensure it aligns with your overall financial strategy.

Key takeaways

  • As ULIPs are long-term investments, it is critical to investigate the insurance provider’s trustworthiness and track record before making a purchasing choice
  • The policyholder’s risk tolerance should determine the asset selection for the ULIP plan.
  • Ensure that you compare ULIPs and their features and evaluate all of the goods offered before purchasing one.
  • ULIPs provide the flexibility to make partial withdrawals after the completion of the lock-in period.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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