Earlier, people considered only investing in safe assets like Fixed Deposits (FDs) or precious metals. While these choices remain relevant for most of the population, investors have a more diversified approach. Instead of putting all their eggs in one basket, they choose to balance their portfolio and generate wealth.
Nowadays, there are a variety of options available to meet the needs of every investor. However, with the plethora of options, it has become difficult to narrow down the choices. One such investment that has gained significant popularity is the Unit Linked Insurance Plan (ULIP). They offer dual benefits of life insurance and investment in a single product. The unique structure allows an investor to secure their family while creating wealth under a single plan.
Several insurance providers are offering several types of ULIP plans. To maximise your ULIP benefits, you must choose the one that fits your needs. Here are some tips which will help you narrow your choices easily:
Risk appetite
Before investing in any funds, every investor has to first consider what risks they will take with it. Young investors usually can take more risks as compared to someone in their 30s who has dependents. Also, it depends upon an individual’s existing investments and savings. For example, if an individual already has a well-established equity portfolio, they would buy ULIP as a safe investment. Whereas other investors who are hesitant to invest in equity would take the risks through an equity-based fund. Also, a unique feature of the plan is that you can switch funds anytime you want. ULIPs can be broadly divided into three types based on the risk appetite of the investor:
Equity-based funds
The money that you invest in an equity-based ULIP is directly invested in the equity market. They have high risks but usually, give high returns. If your portfolio comprises only safe investments, consider allocating your money to equity funds. Use a ULIP plan calculator to ensure that you are investing as per your goals.
Debt-based funds
Debt-based plans would be the choice for investors who want to avoid risks. These funds provide lower returns than equity, but also the risk involved is significantly lower than it. If most of your investments are in equity markets, it is good to diversify your portfolio with debt-based ULIPs.
Balanced funds
When you want to strike a balance between risk and reward, balanced ULIP plans would be the perfect pick. They have both equity and debt instruments in a single plan. Here the funds are partly allocated towards debt and partly towards equity. The result is that you generate moderate returns by taking moderate risks.
Get a sufficient cover
ULIP benefits are much more than investments, it is also life insurance. One thing that will affect you and your family in the long haul is the life cover you choose from your ULIP. You must select a cover that suffices to fulfil your family’s needs. While estimating the needs, consider the rising inflation. Also, if you have any liabilities, add their amount to the cover, so that in your absence, your family can repay the same with ease.
Compare and choose
You will come across several insurance providers offering different plans. The only way to choose the best one for you would be firstly knowing what you need. Once you know what you are looking for, compare several plans and narrow your choices to the one that aligns with your needs. Use tools like a ULIP plan calculator to get the numbers and plan accordingly.
Find the claim settlement ratio of the insurer
When you are buying life insurance, you cannot simply opt for the cheapest one. You must do your research regarding the company from which you are playing to buy a ULIP. Ensure that it holds an excellent reputation in the industry. Also, check the claim settlement ratio as it will reflect the claims that the company has settled in the past. Life insurance affects you and your loved one. Hence, choose your insurance provider wisely.
