How to select the best Unit Linked Insurance Plan

Consider the individual requirement based on life stage, priorities, risk-taking capability and the need and then choose the best plan that suits.

Unit Linked Insurance Plans (ULIP) are the smart financial instruments to select since these give the dual benefit of life coverage and investment opportunity. Several features and flexibilities make it an investment choice for people from diverse age group and walk’s of life. Many of the insurance companies reduced the commission and other charges as per regulation in 2010 by Insurance Regulatory and Development Authority. This made some of the ULIP plans cheaper compared to the mutual funds.

While shopping for a Unit Linked Plan, the following points are worth considering:

  • Charges involved

    – Higher charges of the plan results in lowering the premium amount that is invested in the funds. So while comparing the plans, make sure to select the plan with lower charges to maximise the fund value and coverage. Going online is better to reduce the fund related charges

  • Coverage Matters

    – For young investors, the coverage is less priority than the investment. Premium multiplies with higher coverage. So, if the focus is on investment, then choosing the plan for lowest sum assured will reduce the Mortality charges. On the other hand, if coverage, as well as investment, is the target for the plan then selecting a plan with good coverage multiple is ideal

  • Variety of Funds and Fund Returns

    – Selecting Plans with diverse fund options will better return in the long term investment goal. Insurance companies will have the historic NAV (Net Asset Value) of the funds to compare and invest. Select a fund with consistent and steady performance over the period

  • Flexibility

    of switching funds, partial withdrawal, premium redirecting, Top-ups are the unique features of ULIPs to select from based on your requirement. The higher the free flexibilities offered by the plan, the restrictive the plan will be

  • Flexibility in terms of Tenure and Premium Payment

    – Premium payments could be one time or throughout the duration of the plan. Also, it could be for a limited time. ULIPs should offer the flexibility of premium payment that best suits your financial planning and preference

  • Customization Options

    – These determine the selection criteria of the unit linked plans based on the requirements of the investor. So a variety of customizable options increase the selecting ability of the plan

ULIPs must be selected based on the risk appetite of the investor. There are fund options like:

  • Equity Based funds that are high-risk investments with potential for high return
  • Fixed-interest Income funds and Bond Funds are moderate in both risk and return
  • Cash funds invest money in banks, money market and typically low risk-low return investment
  • Balanced funds are the best options which vests fund partially in equity and the remaining in fixed interest incomes. These give perfect mix for medium risk as well as the good return options

The life coverage and the investment requirements change at every stage of life and ULIP gives the flexibility to customize your requirements. The coverage and premium requirements are low at a young age when the corpus building is the main target. Whereas in the later part of life, a steady inflow becomes a priority. So, it is imperative to choose a plan that best serves the requirement at a particular phase of life. Need based options could be as follows:

ULIP for Wealth Creation

– this is the need at an early stage of life, typically in the 20s and Early 30s. Life coverage can be kept at a minimum if no specific requirement. That way, more fund will be directed towards investment and the financial goals are achieved sooner

ULIP for funding education for children

– Under these plans, money flows towards the education of your kids at the milestone points in their student life and funds flow to continue education uninterruptedly

ULIP for Health Requirements

– Plans should cover the medical requirements as those appear

ULIP for Retirement

– Plans should be selected to build the corpus that will provide payments at regular intervals after retirement. At this phase, the funds to be selected which are low risk but gives assured return

Unit linked Insurance Plans offer a variety of features and benefits to choose from. There are many companies as well and selecting the right one is very important to get the best out of those. Consider the individual requirement based on the stage of life, priorities, the risk-taking capability and the need to select a plan and that will give the highest benefit out of your investment.