Tips to Choose the Right ULIP for Maximum Returns

ULIP is one of the most popular types of insurance plans. Several people invest in because of the dual benefits of insurance cover as well as the investment opportunity. Read on to know more about how to choose the right ULIP plan for maximum returns.

Unlike a standard insurance policy, ULIP or Unit Linked Insurance Plan gives you the benefit of insurance as well as an investment under a single plan. While you may know the benefits of the purpose of ULIP, do you know how to choose the right plan to get maximum returns? Not all ULIPs offer the same kind of returns, nor do they provide similar services. So, if you are looking to invest in a ULIP, considering the following tips will help you choose the right plan.

Variety of funds available and returns on investment

Different fund options offer different returns, and not all ULIPs carry the same investment options. ULIPs generally offer three types of funds – debt fund, balanced fund and equity fund. You must know exactly what type of fund is available in the plan you choose and that if it is in sync with your financial goal and risk-taking capacity. You must decide which type of fund you want to invest in and then choose the ULIP accordingly that offers the highest return in that category of funds.

Associated Cost

ULIP has several costs like premium allocation cost, fund management charges, mortality charges, etc. The IRDAI has capped the fund management charges at 1.35%, and since ULIP charges are adjusted against the returns, you must choose a low-cost ULIP. For instance, if you compare two plans, one with allocation charges of 1.5% and other with allocation charges of 2.5%. Assuming the premium amount for both the plans is 5000 INR per month, the total cost of a policy with 1.5% will be around 50,000 INR cheaper over 10 years.

Additional allocation and loyalty bonus

Some of the ULIPs award the policyholders an additional unit to the policyholders. You must check with the insurance companies if they allow any additional allocation or provide a loyalty bonus. These bonuses can go a long way in building your corpus over a period.

Switch options available

One of the significant benefits of investing in a ULIP is that it allows you to switch your funds from equities to debts or vice-versa based on your changing financial goals and needs. You must ask the insurer beforehand about the number of times they allow the switching of funds. Some ULIPs restrict the switch options to four or five times during the policy term, whereas, other ULIPs allow you to switch fund unlimited times. This is a great option as you can switch the investment based on the performance of the funds and make the most of the existing market condition and increase the returns.

Flexibility of premium payment

Different ULIPs have different premium payment options. The frequency of payment must be considered while choosing the best ULIP. While some people prefer paying the premium once in a year, others prefer paying a monthly premium. Also, some people look for a ULIP that allows them to pay a one-time premium in a lump sum for the full policy term. Depending on your personal preference, you must ask the insurance company if they allow the payment option you prefer and choose the ULIP accordingly.

One of the secrets of earning valuable returns from your investment in ULIP is persistence. Sometimes, the funds that your ULIP has invested in may not perform well, but it is advisable that you stay invested for a long-term. Experts suggest that surrendering the plan before the end of the term is a bad idea. ULIP is a long-term investment instrument; the longer you stay invested, the better are your chances of earning valuable returns.

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Reed Hamilton

Mason Reed Hamilton: Mason, a political analyst, provides insights on U.S. politics, election coverage, and policy analysis.