ULIPs give you the unique benefit of investments along with insurance. Since its inception, it has improved and is now a much more formidable product.
If you ever had any friend or relative pitch an insurance product to you, the chances are high that it would be a ULIP. A Unit Linked Insurance Plan brings in the rare combination of insurance and investment. The product provides its buyers with life insurance in case of unforeseen events and backs as an investment tool for your future as well.
Your money is invested for a long term with the help of some market-related assets within ULIPs. If properly planned and invested, they can come in handy when you move on to buy your first home or get your kid into the school or college like you always wanted to or enhance your retirement funds as well. Some benefits of investing in ULIP are as follows:
Insurance + Investment
ULIPs provide you with a product that gives you the best of the insurance and investment worlds. One could either go in search of individual products to meet the above two or simply choose this plan. It must be noted that the life cover you get from this plan can increase to 8 times the premium you pay. If you feel your premium amount is not high enough, you can look for an additional life coverage.
Cost Effectiveness
Before the year 2010, ULIPs were indeed expensive and this scared off many people. The involvement of the IRDAI has since helped reduce the cost of these products and have made them more accessible.
ULIP charges have come down from 6% – 10% before the change in regulations to about 3% for 5 years and 2.5% for a 10-year plan. The reduction in charges, it is even comparable and cheaper than some mutual fund offerings.
Some people put in much effort to find out the right mutual fund for them. If you are someone who cannot dedicate that much amount of time or resources into such research, adopting a ULIP is the right way to go. Simply because with recent changes, some ULIPs are in collusion with mutual funds.
For example, one of the ULIPs provided by HDFC Life charges just 1.35% of the corpus amount, which is lower that most equity-based mutual funds.
Risk Modifier
Many people have the misconception that ULIPs are high-risk instruments and those with faint hearts should avoid it. This could not get any further from the truth. ULIPs provide you with options to select or split your risk appetite. If you are someone willing to take risks, you can choose aggressive funds, else you can go for balanced funds, which reduces the risk element drastically. Some ULIPs give you the option to split your risk exposure with a cap on the aggressive funds.
Option to Discontinue
Unlike popular belief, you can choose to discontinue your ULIPs post the completion of the lock-in period. The lock-in period for ULIPs has increased from 3 years to 5 years post the changes in regulation by the IRDAI. Post the lock-in period, there are no surrender charges that one must pay.
Additional coverage at a low cost
Just like traditional insurance plans, you can choose riders for ULIPs as well to enhance your coverage. This comes in handy if you are looking to add some accident coverage or health coverage to your existing plans. The cost of this additional coverage is negligible as compared to the cost of a similar plan with equivalent benefits.
Long-term Planning
When considering ULIPs for investments, the goal duration should be kept at ideally 10 years. A longer duration allows your funds to grow substantially and make the most of the compounding that takes place. Another advantage is that a ULIP, being an insurance product, keeping it for a longer duration can help you get rid of mortality charges.
Gone are those days when ULIPs were expensive products. Regulatory changes brought in by the IRDAI have ensured that ULIPs are now at par with most of the mutual fund categories out there. For example, large cap mutual funds provide returns up to 13% – 14%, which is what ULIPs provide at 11% – 14% annually. Debt mutual funds make your portfolio richer by 10% – 12% annually, which is again like returns provided by ULIPs at 10% – 11%.
To sum it up, there are several instruments available for investments. But, ULIPs give you the unique advantage of investing to grow your money while providing you with a life coverage.