Pune, June 27, 2022: The abbreviation ULIP, also known as Unit Linked Insurance Plan, is a product that combines investment and insurance. Policyholders can choose to pay their premiums monthly or annually. In this plan, while a portion is used to provide life insurance coverage, the rest is invested.
Investments in these plans are subject to capital market risks. On the investment portfolio, the policyholder bears the investment risk. Therefore, it is recommended that an individual make an investment decision based on their needs as well as their risk tolerance.
In 1971, the Unit Trust of India (UTI) first established ULIP plans in India. In 1989, Life Insurance Corporation launched its ULIP options. Many investors were initially hesitant to commit to ULIPs because of the high fees associated with this investment insurance product. However, major life insurance companies such as Bajaj Life, HDFC, ICICI Prudential and Edelweiss Tokio have recently launched new era ULIP plans with low fees and many features to ensure maximum profits and comprehensive insurance coverage. for investors.
ULIP: Who should invest in this plan?
Once you know what is ULIP, you need to know if this is the right investment choice for you. If you fall into the following categories, this should make your decision easier.
- People who want to track their investments.
A ULIP plan allows you (the policyholder) to keep an eye on their investments. These individuals can also benefit from the switching flexibility of ULIP plans, which allows them to change the capital allocation between funds with different risk-return profiles. More control over your financial planning, including investment and insurance choices, with an ULIP.
- Medium to extended horizon for investment
For people who plan to invest for the long term, the ULIP plan is suitable for them. Thanks to this, they can invest for a longer period and would get big returns in the process.
- People with different risk profiles
ULIP plans offer a wide range of fund options, each with a different risk-return profile. Therefore, investors with various risk profiles (ranging from risk averse to those with a healthy risk appetite) should understand which ULIP plan funds are available before investing to maintain appropriate return expectations.
- Investors at every stage of life
Different types of ULIP plans are available that can help the policyholder and their loved ones protect themselves and their assets from financial demands and liabilities at specific times.
How to determine the right ULIP plan?
When it comes to choosing the best ULIP plans in India, there are a few factors to consider. Here are the factors to consider:
Analysis of personal investment goals
Every investor should first assess their long-term financial goals before choosing a ULIP plan. It is necessary to select a ULIP compatible with the investment horizon and objectives.
Determine insurance goals
First, determine their insurance goals, then choose a ULIP plan that meets them. If you are young, your current and future family needs must be taken into account, as the insurance cover must be adequate in the event of an accident. It is essential to recognize that ULIPs are long-term investment vehicles.
Another thing to consider when selecting a ULIP plan is the flexibility offered by the unit-linked plan provided. When comparing flexibility-based ULIP plans, the investor should consider the following two factors:
– Flexibility in the duration of the policy: Since many ULIP policies are long-term, they come with a 5-year lock-in period. Investors should consider their investment horizons before making a decision. They must choose the best ULIP from a selection of plans available to them depending on the investment period for which they wish to invest.
– Investment flexibility: Before investing in the desired unit-linked insurance, policyholders can choose their investment options with unit-linked insurance. Investors can choose from hybrid, equity or debt ULIP plans depending on their risk appetite.
Assess risk profile and financial security
Before choosing a ULIP plan, it is essential to assess its risk profile and financial stability. Younger people, who often have a greater appetite for risk, may choose more equity-focused plans, up to a 100% equity allocation. Those who choose financial stability will benefit from a strategy that invests heavily in debt securities, which provides stability while offering limited returns.
Review plan performance
It’s a good idea to look into the performance of a ULIP plan. We can look at the performances of the last three or four years. It provides a reasonable estimate of the plan’s expected returns. The results should also be compared to benchmarks such as the NSE Clever and BSE Sensex.
The solvency ratio of an insurance company indicates whether the company will be able to honor claims in the future. The insurance company must have a solvency ratio of at least 1.5, according to IRDA requirements.
Performance of ULIP funds
Since ULIPs are a combination of insurance and investment, policyholders need to monitor fund performance over time. A policyholder can invest in equity, balanced or debt funds under a ULIP plan, depending on their risk appetite and investment time horizon. Investors can make smarter investment decisions and get the best return on investment over a long period by tracking fund performance.