ULIP (Unit-linked Insurance Plan) is actually a blend of insurance policy and market-linked investment product. Under this policy, a certain amount of the premium is invested in debt or equity funds. The union of insurance and investment in this product has a lock-in period of 5 years. Policyholders are allowed to invest in large, mid or small cap, debt or balanced investments according to your risk appetite. You are also allowed to switch to different funds.
Why Invest in ULIP?
ULIP merges the advantages of insurance and investment in one financial instrument vehicle. In any scenario, they are more beneficial than insurance or investment alone. ULIPs not only provides the security of a life insurance cover but also provide the option to gain market-linked returns.
1. Higher Returns
- ULIP plans get higher returns. The investor may get 12%-15% returns from his/her investment for a tenure of 10 years. This is because ULIP has various options for its investors like balanced, equity, or debt funds. Based on your risk appetite, you can choose one of the options. ULIP enables switching between the funds, and thus, an investor can attract higher returns on the amount invested.
2. Avoid the Trouble of Managing Stocks
- In addition to getting higher returns, you do not have to worry about monitoring the stocks every single day. The insurer and its fund managers look after your stock investments. You can also effortlessly monitor your portfolio with tools such as the unit-linked insurance plan NAV.
3. Multiple Fund Options
- ULIPs provide multiple fund prospects at one's disposal. You can opt for the type of fund where the premiums are invested. These can be fully debt or equity or a combination of both in proportionate ratios. Analysing the historical returns and NAV over the years will make it clearer to recognise the best ULIP plans. Depending on your risk-taking ability, shifting personal and financial situation, you may choose to switch the fund to best adjust to the changing situations. Equity-focused funds are appropriate for people with higher risk appetite while debt-focused funds are apt for risk-averse people who want assured returns.
4. Transparency
- One of the advantages of a ULIP policy is that it is an extremely transparent financial instrument. Unlike traditional policies where some information is shared with the policyholder, one is given information about all the charges levied. From NAV to the historical returns, the estimates help pick the best ULIP plans efficiently. Also, you clearly know where the current account stands.
5. Liquidity
- Unit Linked Insurance Plan is a liquid investment product. They allow partial withdrawal of money to meet unpredictable circumstances and emergencies. Also, the NAV of every fund is displayed on the website of the insurance firm. Comparing the NAV numbers will aid in easily aligning the investment and insurance cover with your overall requirements.
6. Low Surrender Charges
- Surrender charges are costs that one ought to pay in case one is surrendering a policy. If you find yourself in a situation where you are stuck with a plan that is no more fitting, you can pay surrender charges and rid of the policy. The surrender charges are remarkably high in case of traditional plans leaving one with only a tiny portion of the money invested post-exit. However, they are flexible in the case of ULIPs.
There are numerous aspects of why ULIPs are the most efficient investment products. It is recommended that you compare, research and analyse before making any investment decisions.
