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Five factors that can help you choose the right ULIP 

Though all are aware of the benefits and purpose of investing in ULIP, very few of them are aware of the factors to consider before investing in a ULIP plan. Choosing the right plan according to your need is still a significant concern.

ULIP is a unique investment product that offers dual benefits of life protection as well as an investment opportunity. If you are looking to invest in a life insurance policy, you can consider purchasing a ULIP. Few factors that are important to consider before choosing your ULIP plans are:

Returns on the ULIP plans- As discussed earlier, ULIP plans differ depending upon the different kinds of investment. ULIPs plans are generally of three types – equity, debt and balanced funds. So, before you choose a particular plan, you need to select the fund option in which you plan to invest. Selecting the fund option depends entirely upon your financial goals and your risk appetite. After deciding the kind of fund, one can choose the plan that can give the highest returns.

Cost of the ULIPs-  ULIP plans includes different charges such as mortality charges, transaction charges, management charges, allocation charges. These charges depend entirely upon the returns except management charges which is capped at 1.35% of the fund value. For instance, if we consider two different costs, one at 1.5% and the other 2.5 % for a tenure of 10 years. The fund with lower charges stands to Rs. 50,000 cheaper as compared to the one with a higher cost. So, this is imperative to be calculative before choosing the fund.

Loyalty Bonuses- Few insurance providers give loyalty bonuses to the policyholders on the invested premium. The bonus percentage and frequency of bonus varies according to the companies. For instance, if a company pays 1% bonus on the annualised premium, the accumulated bonus at the end of 6 years is 3%. This way, one can amass a significantly high corpus.

Availability of switching options- ULIP plans allow to switch funds depending upon the market volatility and the change in the risk-taking ability of the individual. This feature makes ULIP plans a more lucrative form of investment as they have higher transparency and flexibility as compared to other investments avenues.

The number of switches that one can do during the investment tenure depends upon the funds. Most funds allow switching four times while few allow unlimited switching options. Partial switching of funds is also allowed by few companies which can help yield better returns.

The flexibility of premium payment– Different plans also give the flexibility of premium payments and choose between the frequency of payment. While some would prefer annual premium payment, others can choose to pay premium monthly. Some can even choose to pay the premium at one go without having to pay it regularly.

ULIPs should be considered as a long-term investment option rather than a short term plan. Surrendering ULIPs immediately after the lock-in period is not advisable. Staying persistence would help to build a significantly high corpus in the future. Moreover, it also makes the investor more disciplined by paying the premiums on time.

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