Common Mistakes While Opting for ULIPs

Common Mistakes While Opting for ULIPs

An investment in a ULIPs provides great benefits only if you choose the right plan as per your financial situation and risk profile.

Common Mistakes While Opting for ULIPs

Insurance companies offer unit linked investment plans with different variants as per investor needs. Investing in a ULIP may seem like an easy and simple process. But, picking the right ULIP is not that easy. The working structure of this product is unique as they offer the benefit of both insurance and investment. With the complex nature of the product, it is not uncommon for investors to make mistakes while investing in ULIPs.

Common Mistakes Made When Opting for ULIPs

  • Choosing the wrong plan

Many people do not assess their risk appetite, liquidity requirement and financial obligations before making an investment choice. Selecting the wrong plan can increase your investment risk if you are investing in a market-linked product like ULIP. They are not only about equity. They offer a wide range of fund options to suit every risk profile.

Not following suitable asset allocation at the time of investing is the major mistake. For instance, consider you are a family person with financial obligations like home loans and children school expenses. It may not be ideal for you to choose the aggressive fund. A balanced ULIP option may fit into your requirement. To get what you expect, choose the right plan.

  • Buying with a short-term perspective

    Exiting from a ULIP right after the lock-in period of 5 years is a wrong move committed by many. Expecting ULIP investments to outperform within few years is not right. It is vital to know that insurance products are for a longer duration. As these products are loaded with frontend charges, returns for a short term are unpredictable. Stay in the investment for a long term of about 10 years and more to make the cost-benefit of the policy work.

  • Buying it for the wrong reason

    ULIPs sales are at their peak during the tax-saving season. This means many people buy it only as a tax-saving tool. It is true that ULIP offers a great tax benefit, but it is also important to buy it for the right reason. Products like ULIPs need to be bought based on your financial goals and the suitable merits of the product. Thus, evaluate your needs and priorities before making a ULIP investment.

  • Limited awareness

    When it comes to ULIPs, one common mistake is buying it without understanding the nature of the product. It is important to know the charges involved in ULIPs and their unique features. It is essential to understand the flexibility offered by ULIPs in terms of free switches and top-up facilities. You can en-cash these unique features to optimise the return over the long run. Remember, awareness is the key to success.

  • Cheapest is the best

    Choosing the cheapest investment plan is the biggest mistake an investor can make. It is not only ULIPs, but any type of insurance at a low cost seems attractive. Though, the cost cannot be the single deciding factor. It is important to consider the past performance of the product. Compare different ULIPs available in the market on various aspects before you choose one plan. Make a need-based choice. Consider the limitations and exclusions of the plan you are opting for. Cheapest is not always the best.

Conclusion

Avoid these common mistakes and choose the right ULIP to enhance your wealth. Understand the nature of the product, its features, limitations and exclusions and charges before choosing. Choose the ULIP that suits your investment need and risk profile to gain the most of it.

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