ULIPs are unique life insurance products providing risk cover to you while offering several investment options to invest in such as stocks, bonds or mutual funds. An interesting fact is that the investment portion and the insurance portion can be managed according to your specific needs and choices.
There are a range of ULIPs available in the market to choose from and selecting the best ULIP plan can be a task. Here are certain parameters that may help you decide which is the best Unit Linked Insurance Plan for you:
1. Premium Allocation Charges
Every time you purchase ULIP, the insurance company spends some amount on distributor fee, underwriting expenses as well as medical expenses. The charges are known as premium allocation charges and are levied as a certain percentage of the premium.
Hence, the charges of the plan must be the most important consideration while choosing a plan. The lower the premium allocation charge, higher the premium invested and higher would be the resultant fund value. So, when you are comparing plans, you must compare the charges and pick a plan with the lowest charge structure.
2. Variety of Fund Options
Even though there are three basic funds (equity-based, debt-based and balanced funds), insurance companies have separated these basic funds and have provided policyholders with a whole variety of options.
The asset classes are as diverse as the fund options and would be better for your investments. Hence, you should pick plans that have higher fund options to pick from.
3. Flexibility In Terms Of Premium Payments and Tenure
Different policyholders have different preferences when it comes to paying premiums. Some prefer paying premiums for the entire duration of the plan while others want to pay premiums for a limited period. Hence, it is important to consider your premium paying preferences when considering a plan so that you may choose the best ULIP plan as per your needs.
The ULIP plan should also allow you a term selection that is in alignment with your financial goals.
4. Check for Coverage
While you are checking out premium payment term and the tenure, also look closely at the life cover. ULIPs typically calculate the cover as a multiple of the annual premium amount. If your goals are investment-centric, you should choose a plan with the lowest sum assured because a higher cover means a higher mortality charge. On the other hand, if you are considering insurance as well as investment, you should be looking at a plan that offers a decent coverage multiple.
5. Analyse Fund Returns
Most people are lured towards ULIPs because of the return potential and want the highest returns. If returns are your objective, it would be wise to see the past performance of the funds (the plan that you are considering).
Past NAV (Net Asset Value) growth or the performance of the funds over the years is usually available with the insurance company or in the public domain and should always be looked at before choosing a plan. You should carefully study fund performance and choose a plan with a steady and consistent performance over the years.
6. Find Flexibility
Nowadays, ULIPs offer you the flexibility of ‘sum assured alteration’ wherein you can increase or decrease your chosen sum assured. Moreover, unique features like partial withdrawals, top-ups, switching, premium redirections, etc. make ULIPs a sound plan to invest in. You can use these features to curate a plan that’s least restrictive and provides maximum benefits to you.
7. Go Through Customisation Options
While choosing a plan, it would be wise to go through available riders as they provide comprehensive coverage with customisations that best suits your goals.
The factors discussed above are basic checkpoints while choosing the best ULIP plan for you. In a nutshell, you should know what a ULIP is, get a grasp on its structure, features and benefits.
Once you have understood the plan completely, you should research and compare the available plans to decide which will be the best ULIP plan for you. Use the yardsticks listed above and go ahead with a plan that serves your purpose.
Founder Dinis Guarda
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