Ask Mint | Ulips work best in the long term

Ask Mint | Ulips work best in the long term

I wasn’t able to pay the premium for my unit-linked insurance plan (Ulip) on time. It was due last month. What would be the status of the policy now? I bought it in October last year.

Ulips have a feature, wherein your policy may not lapse (subject to the terms and conditions of your policy) if premiums have been paid regularly for a certain number of years. However, this may not be the case in the initial years and skipping your premiums may lead to lapse of your policy.

However, check the grace period that the policy offers you. The policy will get lapsed due to non-payment of premiums only after the grace period gets over.

I bought a Ulip early this year and opted for its equity fund. I am not satisfied with its performance. Now that the markets have bounced back, should I book my profits and exit the policy?

You need to understand that Ulips are long-term investment vehicles and, therefore, exiting early is not advisable. You should keep paying your premiums. By doing so, you will be able to buy units at various net asset values, averaging out your price per unit. To make your returns better, try switching between different fund options. Certain funds such as “asset allocation" funds and portfolio strategies depending on the age provide risk-return optimization automatically. It would be wrong to compare the performance of the fund with that of the market. An upswing would lead to better returns and a downswing would increase the number of units bought.

I bought a pension plan about two years back when I was 53-years-old. Markets were bullish so I invested in the equity fund but then the markets tanked. Now, again the markets have bounced back. I will retire at 60 and I need to safeguard my investment against any such market volatility, what is the way out?

To minimize volatility in your returns, you can reallocate your fund value among various fund options, depending on their risk profile. This will also help you get the benefit of various asset classes and achieve risk-return optimization. Alternatively, find out if your policy offers an age-related portfolio strategy. If so, you can opt for that.

Recently I was offered a personal accident cover of Rs1 lakh at a mall for just Rs50. Should I buy it?

Personal accident is a low-cost product that provides a cover only in case of accidents. If you do not have any other health policy, then you can opt for it. But it is advisable to go in for a broader product that covers health, hospitalization and disability with personal accident as a rider.

Kamlesh Goyal is Counry Manager and CEO, Bajaj Allianz

Queries and views at