Step-by-step guide to choosing a ULIP
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Step-by-step guide to choosing a ULIP

  • Highlights

  • ULIPs combine insurance and investment

  • Know the fund composition of the ULIP before you invest

  • ULIPs allow investment flexibility for your ease

  • You get a number of switching options too

Blending insurance and investment into a single product, a unit-linked insurance plan (ULIP) provides you with a life cover along with the opportunity for long-term wealth creation. Alongside, other life insurance products like term plans, endowment policies, and money back plans, ULIPs have been gaining popularity with investors, as they offer great returns over the long term. This guide will help you zero-in on the right ULIP that helps you address your financial goals.

Know the underlying funds offered by a ULIP

In ULIPs, a portion of the premium you pay is invested in the market to generate returns. Before choosing a ULIP, know about underlying funds offered. Equities, debt and balanced are the three basic funds offered by a ULIP.

The choice of funds should align with your financial goals and risk appetite. If you are an aggressive investor, you can choose equity funds. On the other hand, if you are a moderate investor, you can opt for debt or balanced funds.

Find out the applicable charges

Prior choosing a ULIP, it is essential to find out the applicable charges. There are several costs associated with a ULIP such as:
- Mortality charge
- Premium allocation charge
- Fund management charge
- Partial withdrawal charge
- Switching charge

These charges play a key role in determining the cost of a ULIP and the premium payable.
Additional Read: ULIP vs. SIP - Which is Better?

Flexibility to invest in funds

It is important to know the flexibility offered by a ULIP to invest in funds. While some ULIPs offer flexibility to invest in 7-8 funds, others have fewer funds. The funds are diversified across classes such as equities, debt, and balanced. Based on the performance of funds and your financial goals, you should be able to switch between funds.

Number of switching options available

One of the conveniences of ULIPs is the availability of switching options. You can switch from one fund to another if it’s not performing well. Before buying a ULIP, find out about the number of switches you can make. While some ULIPs cap the number of switches, others offer unlimited switching options.
Additional Read: Different Types of Insurance Policies in India

Starting early, investing regularly, and for the long-term are the key rules of maximising benefits from a ULIP. A life insurance product that gives you the best of both worlds, insurance and investment, the right choice of ULIP can help you address major financial goals with utmost ease.

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