How to select a ULIP

By Guest |  24-01-17 | 
 
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Morningstar invites thought leaders from the investment community to share their insights. Views expressed are personal and should not be construed as investment advice.

With the range of ULIPs available in the market, choosing the best is an onerous task. However, here are a list of parameters which help in judging the best Unit Linked Insurance Plan from the available ones.

Charges

The first and the most important consideration is the charges which the plan has. The charges lower the premium amount which is invested in the market. Needless to say, lower the charges higher would be the premium invested and higher would be the resultant Fund Value. So, when comparing plans, compare the charges and pick the one with the lowest charge structure.

A tip: Online ULIP plans usually have no premium allocation charge as the middleman or agent is eliminated from the selling process. Thus, consider online Unit Linked Plans for a lower charge structure.

Fund variety

Though there are three basic funds, companies have segregated these basic funds and have come up with a variety of options. Higher the fund options, diverse would be the asset class and would be better for your investments. So, plans which have higher fund options should be your pick.

Flexibility in premium payments and tenure

While some policy holders prefer paying premiums for the entire duration of the plan, other want to pay a limited period premium while some prefer a one-time investment. When considering a plan, consider your premium paying suitability and choose the plan which suits your preference of premium payment.

In case of the tenure too, the plan should allow you a term selection which is in tandem with your financial planning goals.

A word about the coverage too

While considering the premium paying term and the available plan term don’t forget to have a look at the life cover. ULIPs determine the cover as a multiple of the annual premium. If you are looking for an investment avenue, choose a plan with the lowest Sum Assured because a higher cover means a higher mortality charge. On the contrary, if insurance and investment is your motto, look for a plan which offers a decent coverage multiple.

Fund returns

Investing in ULIPs means that you are lured by the return potential and want the highest returns, don’t you? So, if returns are your objective, wouldn’t it be wise to see the past performance of the funds of the plan which you are considering? Historical NAV (Net Asset Value) growth or the performance of the funds over the years is available with the insurance company or in public domain. You should study this fund performance and choose the plan with a stable and consistent performance record.

Customization option

Riders are very good in providing a comprehensive coverage option and come in handy in customizing the plan. A good availability of riders or riders which fit your needs should also factor in your consideration while comparing plans.

Flexibility

Switching, partial withdrawals, top-ups, premium redirections, etc. are the unique features of aULIP or Unit linked Insurance Plan which makes the plan flexible. Moreover, nowadays, some ULIPs also allow Sum Assured alteration feature which allow you to increase or even decrease your chosen Sum Assured. Though the switching, partial withdrawal, top-ups, etc. have almost the same applicability, the frequencies which are allowed free of cost are varying. The larger the number of free features the less restrictive would the plan for you.

Conclusion

These are the basic parameters for choosing an ULIP. Some plans have a different benefit payment structure. For instance, death benefit in some plans are payable in monthly installments. However, this feature should not be a parameter as the benefit structure is individualistic in nature and depends on individual requirements.

In a nutshell, we must know what a ULIP is, understand its structure, its features and its benefits. After you have understood the plan, make an attempt to research and compare the available plans which will suit you the most. Use these yardsticks enumerated above and select the plan best suited for you.

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Source: Advisorkhoj.com

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AshaKanta Sharma
Sep 17 2017 07:00 PM
A good guide on ULIP.
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