Life insurance has come a long way since the mid-1900s when it was first launched. Rising awareness and consumer expectations have brought about a revolution in the life insurance sector. While earlier life insurance plans were rigid with a long-term perspective, today Unit Linked Insurance Plans (ULIPs) provide the much-needed flexibility and also a shorter tenure investment opportunity. Even ULIPS have undergone many changes in their charges and structure when SEBI intervened some years back. The version of ULIPs offered today is revamped and offer some of the best benefits. Investing in ULIPs have never been so gratifying than it is today and you, as an investor stand the chance to reap the benefits.
Though investing in a ULIP is good, there are certain things you should know or rather some questions you should ask before you invest in a ULIP. Are you investing in a ULIP blindly? What are the questions you should ask? Let us see –
Is the plan suitable for your requirement?
The most important question is whether the plan fits your financial goals. Though a ULIP provides flexibility in the form of partial withdrawals, such withdrawals are allowed only after 5 years. Moreover, though the returns in a ULIP are good, holding the plan for a longer tenure is important to achieve such returns. So, measure the plan against your financial requirements before you buy.
What are the charges?
A few years back when SEBI had not intervened, ULIPs had colossal charges deducted from the premium which resulted in very low yields. Thanks to the changes made, ULIPs now have a very low charge structure which maximizes returns. Charges under a ULIP are in the form of Premium Allocation charge, fund management charge, mortality charge, administrative charge, etc. Though the other charges are inevitable, many plans do not levy the premium allocation charge. So, study the charge structure of the plans available and buy one with the lowest charges.
What is the coverage available?
The determination of the Sum Assured under ULIPs depends on the amount of premium paid by the policyholder. The premium coverage is expressed as a multiple of the annual premium or single premium paid. The multiple allowed varies from plan to plan and so assess the coverage available in the plan under consideration.
What are the historic returns of the portfolio?
A ULIP provides good returns by virtue of diversification. The funds available in the plan have a diversified portfolio comprising of multiple companies. Since ULIPs are subject to market risks and the returns are not guaranteed, it is important to check the historical returns generated by the funds so far. This would give you an estimated, though not accurate, trend of returns generated and expected.
What are the flexibility conditions?
ULIPs find favor with investors due to the flexibility they provide. Talk about switching, partial withdrawals, premium redirection, top-up facility, etc., a ULIP has ample scope of flexibility. Every plan provides this flexibility but they are subject to some conditions. For instance, there is a cap on the frequency of free switches, a limit to free partial withdrawals, etc. So you should find out what are the limit of free facilities in the plan you are considering buying.
Are there any extra benefits available?
Gone are the days when ULIPs provided death and maturity benefits. Nowadays, insurers are increasingly providing the features of guaranteed additions and loyalty additions which add a fixed percentage of returns to the existing fund value at certain intervals. More and more plans are promising these benefits and they should also form a part of your consideration when you are buying a ULIP.
These questions usually take care of any and every query you might have when you are investing in a ULIP plan. You should not invest solely based on the plan’s promotional campaign or at the behest of your agent. Ask these questions and compare between the multiple plans available in the market. If it seems confusing approach a broker, they have multiple plan options and are better placed in meeting your queries than your independent agent.
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