The generic approach to wealth management is goal-based. Investors park their funds in various financial instruments to cater to their future needs. One of the best vehicles to help achieve this objective is a Unit Linked Insurance Plan [ULIP].
Before investing in such an avenue, it is important to understand ULIP meaning. This financial scheme aggregates the benefits of both investment and insurance. Therefore, you may enjoy risk cover as well as high returns. Such a policy is best-suited for meeting long-term goals and objectives. Following are four methods that will help you achieve this.
- Opt for top-ups and suitable premium mode
In case you have any additional surplus available, say from a bonus or from the sale of property, you may utilize the top-up option. Financial advisors recommend top-ups as they help lower the overall cost associated with a ULIP policy. Top-ups generally attract a 1-2% charge, as compared to the fees on the original premium. This means that you may purchase a higher number of units at a lower cost. You may, therefore, lower the total average cost. Another benefit of a top-up on a ULIP scheme is that it contains the insurance aspect as well. This helps in increasing the level of life coverage. You may utilize this benefit as you become older and your liabilities begin to increase.
To achieve your goals of high returns, you may also consider monthly investments in a ULIP policy through Systematic Investment Plan (SIP). Regular investments help average the cost of units. Besides, this inculcates disciplined savings habit.
- Utilize various fund options
ULIP policies allow you to select the funds you wish to invest in. On the basis of your preference, you are also allowed to select a percentage that you wish to invest in each fund. The fund options vary from insurer to insurer. For example, Bajaj Allianz Life provides seven options, which are Pure Stock Fund, Equity Index Fund II, Asset Allocation Fund, Accelerator Mid-Cap Fund II, Equity Growth Fund II, Bond Fund, and Liquid Fund.
You may make a choice between these fund options based on the market performance, your age, risk tolerance, and most importantly, your life goals. For example, if you belong to the younger age group and do not bear the financial obligations of a family, your risk tolerance may be higher. You may, therefore, allocate the premium in a high-risk instrument such as equity funds. If your life goals are long-term, you may invest in large cap funds. Such funds are generally invested in reputed blue-chip companies and face lower volatility. It is recommended to shift from high-risk investments to low-risk, such as debt funds, when you are at least three years away from your goal. This aids in lowering risk while earning good returns at the same time.
The good news is that insurance providers also allow you to change the fund apportionment by utilizing the ‘fund switch’ option. Through this feature, you may move your funds between investment options, with the goal of obtaining optimum returns. You may also avail of the permanent fund switch option to make a lifelong change to the fund apportionment based on your latest fund switch.
- Make use of ULIP features
Every individual has varied financial needs at different life stages. You may put to use various ULIP features such as different premium payment methods, partial withdrawals, or varied fund options in order to customize your saving schedule. For example, ULIP policies allow tax-free partial withdrawal upon completion of the five-year lock in period. Therefore, if you wish to obtain funds for a certain goal, say for your marriage, you may partially withdraw from your ULIP policy once the lock-in period has been complete. You, therefore, need not borrow a loan from any financial institution or liquidate your emergency fund to meet your financial requirements.
- Plan life stage needs
ULIP policies appeal to individuals looking to fulfil their long-term needs. You may determine your goals and estimate how much amount will be needed to fulfil those goals. While doing so, it is imperative to take the inflation factor into consideration as well. Insurance providers offer the benefit of an online insurance calculator, which helps you determine your insurance requirement.
Alternatively, you may seek the help of your insurance agent, who will generate a ULIP ‘illustration benefit’ on the basis of various personal factors like age, sum assured amount, desired term of the policy, and the amount needed to fulfil your life goals. You may calculate the premium amount that you need to pay for a particular sum assured amount, so that the fund value of your policy at each life stage helps in meeting your requirement at that point of time. Financial advisors recommend taking a coverage of at least 15 to 20 times the annual premium amount so as to meet your lifetime goals.
If you are looking to fulfill your long-term goals, a ULIP plan is indeed an ideal option. Due to the varied ULIP benefits, a lot of investors are opting for this scheme. Some benefits to look out for include comprehensive protection, loyalty or booster additions, lower fund management charges, and Rupee cost averaging, besides others. Through these ULIP benefits, you may get closer to your life goals, be it saving for your marriage expenses, funding your child’s future education, making down payment for a new home, purchasing the vehicle of your dreams, taking an international trip, or even ensuring financial stability of your loved ones in your absence.