BackConsider ULIP As An Investment Option For These Reasons
A part of the premium paid under this policy is used for life insurance cover, and a part used for investment in instruments selected by the policyholder. Therefore the policyholder or the investor has control over his funds
PremiumULIP or Unit Linked Insurance Plan is insurance along with an investment aspect. This means that a ULIP policy has the policyholder covered as far as life insurance goes but also offers the investor the chance to earn money based on the investment angle built into this type of plan,
A part of the premium paid under this policy is used for life insurance cover, and a part used for investment in instruments selected by the policyholder. Therefore the policyholder or the investor has control over his funds. This makes this kind of policy useful as the fund has the potential to grow.
However, it must be remembered that the investment in capital markets has attached to its market risks. But considering that the funds are invested by professionals and managed by professionals, the risks, while existent, are reduced to a certain extent.
There are several points to keep in mind before investing in the ULIP scheme. The first is to make sure that the investment in such a policy is in line with the future that the investor has in mind. What are the investment goals that he is looking at? Since a part of the premium is going to be used for investments, and since market risks are present, does that work? If a fixed sum of money is required at maturity or death of the investor, the total investment may need to be carefully calculated.
Then there is the matter of terms. ULIP investments are generally long term. They give the maximum benefit when the funds stay invested for a period of tie. It is not a short term investment scheme. Therefore the requirement of funds against the policy is something which must be decided. If short term funds are required, then investment in ULIP is not a good idea. However, since life insurance policies are usually for the long term, it is interesting to consider investing in a ULIP linked plan.
The best way is to calculate the amount of life insurance needed to guard against the family falling into financial difficulties, then see what amount is available for investment. Once this is decided, it becomes easier to decide on the quantum to invest. The larger the amount, the more return on investment is possible.
The whole idea is to look at a ULIP plan as an investment instrument which also doubles as an insurance policy. Since an investment means that the part of the premium is being used as an investment vehicle, some idea as to the growth of the fund may be envisioned. It does not mean that this will be what the policyholder will get, but an indication based on market experience can be had.
It is important to keep in mind that the investment in marketable securities is dependent upon the appetite for risk of the investor. If the investor is low-risk, he can choose to ask for his funds to be invested in low-risk debt funds. If the investor is one who has an appetite for high risk and high gain, then it is important to invest in those areas where while the risk is high, the gains are also high. ULIP plans offer this flexibility to invest in low-risk areas and high-risk areas. It is possible to easily change from one area to another without paying exorbitant charges.
Another area to keep in mind is that the funds may have a lock-in period, for example, 5 years. This means that the funds are not available for that period. If the financial stability of the investor is good and he has backups for emergencies, then the ULIP plan is a great idea. Since the funds invested will be locked for sometime, it is important to see whether that is something that the person planning on investing should decide before going ahead.
Generally, ULIP plans are transparent, but it is necessary to check all charges which will be levied. Comparing different plans offered by different insurance companies will give you the best plan. Since investment is envisaged, it is important to check everything.
Before investing, check out the performance of the insurance companies ULIP performances in the last 4 years. This should tell you how good the investment people are. This is very important because after all one is investing in a ULIP plan to grow the fund and make money. Therefore if the fund managers in the insurance are good at what they do, the returns should indicate that.
But why invest in ULIP? The reasons are that they offer a larger return. They also offer life insurance protection to the investor. If a ULIP plan is for a tenure of at least 10 years then a large profit can be expected. If the policyholder does not die during the validity of the policy and is still alive at maturity, then the returns are quite handsome. Investment profits plus the maturity amount of the life insurance. Generally, normal life insurance policies give the total premium along with a bonus back to the policyholder. Since there is no investment angle, there is no real growth apart from whatever bonuses are declared by the insurance company. It is a great idea to use a ULIP calculator online to see what returns one can get. The calculator takes into account such things as age and gender and whether a smoker or non-smoker etc., for the life insurance part. The investment will depend on the amount of premium for investment and which instruments have been selected. The calculator will show how much you will gain at the end of 10 years. It is certain to be high since the investment part will generate profits. Therefore it is important to invest in ULIP policies for their twin benefits, life insurance protection and investments which can fetch large profits over time. It is now the smartest investment there is.
Disclaimer: This article is a paid publication and does not have journalistic/editorial involvement of Hindustan Times. Hindustan Times does not endorse/subscribe to the content(s) of the article/advertisement and/or view(s) expressed herein. Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the view(s), opinion(s), announcement(s), declaration(s), affirmation(s) etc., stated/featured in the same.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
