A Unit Linked Insurance Plan (ULIP) is a one-of-a-kind life insurance policy that offers dual benefits of life protection and investment opportunity. When you pay the premium for ULIP, the insurance companies allocate a specific portion of the same to provide life cover. The rest of the amount is invested in different assets to generate returns for you.
You can choose the funds you want to invest such as stocks, debt, equity or balanced funds to suit your risk-taking capacity and long-term financial goals. Many people prefer buying a ULIP plan over other life insurance policies because it eliminates the need for purchasing a separate life cover.
Another significant feature of ULIP is that it has the highest returns potential in the long run compared to other life insurance policies. Historically, ULIPs have provided valuable returns in the range of 10-12% for investments ranging from 10-15 years. The returns depend on various factors like the funds’ performance, the type of assets you invest in, how well you take advantage of the market movement by switching your funds, etc.
How do ULIPs help in getting stable returns?
When you buy ULIP, apart from paying the premium to get life cover, you must incur many other costs such as mortality, administration, fund switching charges, etc. However, the IRDA has restricted fees structures on ULIPs, which helps you optimise your returns. Also, the introduction of the return of mortality charges has made ULIPs an even more attractive investment instrument. Today, the insurance companies pay back the mortality charges and add the same to the fund’s value.
Professional fund managers manage the investment aspect of ULIPs. They make all the investment-related decisions on your behalf as per the market movements. If you need to move your funds or increase your investments, you can get your fund manager’s help. However, you can keep track of your assets and switch your funds promptly if your funds are not performing well. This limits the risk of loss and increases the returns potential.
Another significant benefit of buying ULIP is that they offer you several fund options to invest in. If your goal is to get maximum returns and don’t mind taking a risk, you can invest a large portion of your money in equity-related instruments. However, if you are looking for consistent returns without taking much risk, you can invest in debt or balanced funds.
ULIPs give you the flexibility to change the investment component at any time. You can move your funds to capitalise on the market movement and get higher returns. Also, you can use the top-up option to increase the investment when the fund is performing well and earn higher returns.
A unique feature about ULIP is that it has a lock-in period of five years. So, during this period, you cannot withdraw the funds from your account. Even if you want to surrender the policy, you will get the surrender value after five years. Also, the lock-in period allows you to be financially disciplined and invest consistently towards your long-term goals. This makes ULIPs an ideal investment choice for achieving short and medium-term goals.
Final Word
Thus, through professional fund management and flexibility to switch funds, ULIPs give you the opportunity to get valuable returns. However, it would help if you stayed invested in ULIP for a more extended period of up to 10 years or more to get the most out of it.