In the last decade or so, many exciting investment products have already been launched. If you have long-term goals, then these investment products can be an effective way of achieving those goals. Along with a good investment plan, what many financially savvy people look for is insurance. A well-designed life insurance plan that offers optimum coverage is a vital aspect of living a financially well life. It not only benefits you by giving you a deeper peace of mind, but also provides a secure future for your family. A product that merges the benefits of both insurance and investment is the ULIP plan or Unit-Linked Insurance Plan. Here’s how a ULIP can help you meet your long-term financial goals.
First, let us understand how ULIPs work.
When you invest in a ULIP plan and pay your premiums, the money is pooled by the insurer along with the money from other investors. This lump-sum amount is then invested into the instruments of the investors’ choice. However, your entire premium is not used for this purpose. A certain portion is retained to help build the life insurance cover. Thus, both aspects are met with one premium.
The money invested in the market earns returns as per the performance of the funds. The returns are distributed amongst the policyholders as per each individual’s share in the market. The insurer also allocates units to each policyholder on the same basis. This is why the plan is called a Unit-Linked Insurance Plan.
How to achieve long-term financial goals with ULIPs
Use the lock-in period for financial discipline
Perhaps one of the most important obstacles to gaining long-term results is the temptation to withdraw money as soon as one earns some returns. With a ULIP plan, this aspect is dealt with smartly. ULIPs have a lock-in period of five years. You cannot withdraw any money within this period. All you can do is keep investing. This is an effective way to allow your funds to grow exponentially, as there is no external intervention.
Once the lock-in period ends, the large corpus can be withdrawn in installments to help you meet your financial goals. Keeping the ULIP for a longer duration, such as 10 years or 20 years, can be even more beneficial. A ULIP plan calculator can help you immensely in creating a robust, long-term ULIP plan.
Review the ULIP benefit illustration thoroughly
The ULIP illustration is a document that provides a 360-degree look at your ULIP plan. It illustrates how your money will be invested, the charges you will have to pay, and also the value of funds you can expect at different points of the tenure. Use this illustration to check whether the funds will have enough value to meet your needs at specific points in the future. If the value does not meet your criteria, consider increasing your premium or opting for more market-linked options. This can increase the output from your ULIP plan to a great extent.
Take advantage of fund options and switching
ULIPs offer a variety of fund options for every type of investor. If you are a risk-averse investor, you can invest in debt funds. If you have a high risk-taking capacity, you can opt for equity funds. As per the long-term goals you have and the duration you require to meet them, you can opt for the appropriate funds. Goals that require a large amount of funding, such as children’s higher education, can be better met with equity funds. You can use a ULIP plan calculator to check the kind of returns you can expect with each of the fund options.
What’s more, if one kind of fund is not suiting your risk profile or bringing in the returns you wished for, you can get the money transferred to another fund option. This can be done as many times as you want, without incurring any charges.
Another piece of advice would be to opt for add-ons with your ULIP plan. Add-ons such as critical illness rider, an accidental permanent disability rider, and so on are available with most insurers. These riders can help you meet your financial needs when life takes unexpected turns. Apart from knowing what a ULIP policy is, you should also have an exact idea of the policy wordings. Do read the terms and conditions before investing.