Every individual, whether bachelorette or married, has some or the other financial responsibility towards their family members. While an unmarried individual might have to look after the financial needs of their parents, a married person might have to take care of the financial requirements of the spouse and the children. In India, approximately 55% of Indian parents financially support their adult children, according to a report.
As a breadwinner of the family, you might feel that you have saved a lot of money for your loved ones during your active working years. While savings are crucial, you cannot predict its sustainability in the long run. During an emergency, you might end up using your entire savings. To ensure that you have enough funds for your family’s secure future, you should invest in a Unit Linked Insurance Plan (ULIP).
Before you invest in a ULIP plan, let’s understand what a ULIP plan is in detail:
A ULIP is a market-linked financial product. Although a ULIP plan is linked to the market, it secures your loved ones in your absence and your invested capital from market risks. This is because a ULIP plan combines the benefits of investment and insurance in a singular plan. Moreover, a ULIP policy allows you to create an ample amount of wealth to fulfill your life goals like traveling, starting a new venture, pursuing a new hobby, and so forth.
Selecting the right ULIP policy can end up in a daunting task if you are unaware of its benefits. Today, you can find attractive deals and offers under a new-age ULIP plan. A new-age ULIP plan is a convenient, flexible, and affordable form of investment. Let’s go through the top five parameters you should look for before investing in a ULIP plan:
- Life coverage
The insurance component of a ULIP plan provides financial protection to your loved ones. In your absence, your family members can obtain a payout to ensure their financial well-being. The payout, which your family receives on your death, is known as a death benefit. Since a ULIP policy has a lock-in period of 5 years, you can choose life coverage depending on the lock-in period. However, if you choose a high coverage for your family, your premium value would eventually rise.
Premium is an essential element of a ULIP policy. When you purchase a ULIP policy, you should pay the premiums regularly to enjoy the benefits. The premium of the ULIP policy is not only directed towards the funds but also the charges. As a policyholder, you should pay the premium quarterly, monthly, half-yearly, and yearly based on your convenience.
A ULIP policy was known for high charges in the Indian market a long time ago. However, post the introduction of new rules by the Insurance Regulatory and Development Authority (IRDA), the ULIP charges have significantly reduced. Today, you can find the four most common charges under a ULIP policy, which are as follows:
- Fund management charge
A fund management charge is deducted for managing equity funds and debt funds, which is usually levied as the percentage for the asset value.
- Mortality charge
A mortality charge is deducted for the provision of life coverage.
- Premium allocation charge
A premium allocation charge is deducted from your premium before the allocation of units under the ULIP policy.
- Policy administration charge
A policy administration charge is deducted for the maintenance of your ULIP policy.
The primary goal of a ULIP investment is to receive better returns as compared to other investment products like mutual funds. However, the ULIP returns depend on market performance. Therefore, you should select between equity funds and debt funds based on your risk appetite. For instance, if you are unable to bear the market risks, you should opt for debt funds. If you can bear the market risks, you should invest in equity funds to receive high returns.
In a nutshell, a ULIP policy is a long-term investment. You should stay invested in a ULIP policy for a long time to not only grow your funds but also to achieve your financial requirements. Since there are several ULIP policies in the market, compare all the options, and choose the right plan based on your investment goals and financial needs.