Things to watch out for while buying a ULIP!
Have you ever heard about any ULIP policy?
India’s financial industry has changed throughout time. The number of insurers, banks, asset management businesses, and brokerage firms has increased over time, providing clients with a wide range of options. However, having several alternatives frequently leads to confusion.
When you have fewer options, it is always easier to make a decision. Confusion develops at two levels: the product type and the service provider.
For example, if you want to get a life insurance policy, you will have to pick between a unit-linked insurance plan, a term insurance plan, a money-back plan, and a full life plan.
ULIP insurance provides investing benefits in addition to insurance, but they are often misunderstood. Let us look at several features of a ULIP policy, which will address critical concerns like ‘what is a ULIP insurance?’ and ‘why should I invest in a ULIP?’
What is the ULIP Policy?
A unit-linked insurance plan combines insurance with investing. ULIPs offer both security and wealth building. , When you purchase a ULIP Plan, a portion of the money is utilised to provide insurance coverage, while the remainder is invested in market-linked products.
Learn these tips to buy the best ULIP insurance.
The investment corpus is managed by a professional fund manager, and investors have a variety of fund alternatives to select from, including debt and equity funds. Depending on your long-term financial goals, you can select a fund choice.
If you are saving for retirement, you may want to consider a debt fund because they are less risky. If long-term wealth accumulation is your goal, an equity fund that delivers investment growth may be a good choice.
During the policy’s term, you can swap your assets between other funds based on your risk tolerance and market conditions.
Why should you invest in a ULIP Policy?
The fundamentals of ULIP policy are apparent, but every investment must have a purpose. You may require a protective cover, or you may wish to save for your child’s school or your retirement. Before investing, everyone should ask himself, “Why should I invest in a ULIP policy?” ULIPs offer several benefits.
The product’s versatility is one of its most significant features. The adaptability enables insurers to design ULIPs as child plans, retirement plans, or asset building plans.
You can invest in either an equity or a debt fund, depending on your financial objectives. ULIP insurance allows you to swap between funds and change your portfolio based on market circumstances and your expected return.
ULIP policy features a five-year lock-in period, guaranteeing that you remain invested for the long term. Though investing for only five years is insufficient to attain long-term financial goals, the first lock-in period instils the habit of patience and consistent saves.
With the emphasis on the investing component, it is important to remember that a ULIP policy is, after all, a life insurance plan. ULIPs offer both life insurance and long-term investment rewards. You may choose the quantity of insurance coverage you require and pay the payments appropriately, just as with other insurance products.
Though tax benefits should not be the primary motivation for investing, ULIPs do give a slew of them. Section 80C of the Income Tax Act of 1961 allows for a tax deduction of up to Rs. 1.5 lakh on ULIP insurance premiums paid in a calendar year.
How to choose the right ULIP Policy?
By investing in a Unit Linked Insurance Policy, or ULIP, you may make your insurance policy work for you. If used appropriately, these ULIPs provide a plethora of benefits and are quite helpful investment prospects.
ULIP policy allows investors to protect their families from financial insecurity that may arise after the policyholder’s death, while also allowing the policyholder to receive regular benefits while still alive – making the insurance policy work and earn rather than simply parking funds in a traditional insurance plan.
Choosing the correct ULIP insurance is critical, and to do so, one must examine his or her criteria and risk tolerance.
The credibility of the Company
Every financial transaction requires a high level of credibility. Before lending money to a buddy, people check his or her trustworthiness. When you invest in a ULIP policy for crucial life objectives such as your children’s education or retirement, you must be certain of the insurer’s integrity.
One just cannot afford to lose all of one’s funds owing to the insurance company’s financial insecurity. The insurance company’s solvency ratio might reveal a lot about its financial soundness. The insurance regulation has established a 150 per cent insolvency level; nevertheless, some organisations have a substantially greater solvency ratio.
The ratio measures the insurer’s capacity to satisfy its liabilities under severe circumstances. A greater solvency ratio corresponds to a larger financial buffer. Investors should consider the claim settlement ratio in addition to the solvency ratio. It is the percentage of successful claims that an insurer settles.
2. Claim Settlement Ratio
It is the total number of claims paid by an insurance company in a given year. Before purchasing life insurance or any other type of insurance plan, such as health, savings, or ULIPs, one should always consider reviewing the claim ratio of the firm.
We purchase ULIP insurance with a trust in the life insurance business to guarantee our loved one’s financial future in our absence. To guarantee that you select the proper provider, consider the claim settlement ratio, a number that represents a firm’s dependability in terms of how readily they handle death claims.
A low claim settlement ratio indicates that the insurance company is not honouring a significant number of claims, and vice versa. The denial of insurance benefits to your loved ones while you are away defeats the purpose of a life insurance policy, thus the insurer’s trustworthiness is an important factor to consider before investing.
Wrapping It Up
Investing in a ULIP policy has several advantages, but the investor’s needs should take precedence. For example, if you have a short investment horizon of 5-8 years or less, you may not be able to fully profit from ULIP insurance.
Before investing, make a list of your criteria and constraints, such as your investment horizon, financial objective, and risk tolerance. Once you’ve determined your needs and constraints, you may compare ULIP policy based on a set of criteria.