Unit linked insurance plans or ULIPs are life insurance schemes with an added investment feature. They provide you with a life cover that can protect your family in a time of despair. Along with that, a portion of the money goes to a fund where your money will be invested in different securities according to the theme of the fund you have chosen.
Even though ULIPs are popular, many people have a confusion regarding the kind of investment vehicle ULIP is. A lot of people are doubtful whether ULIPs are a long-term option or a short-term option. Let’s look at some main characteristics of ULIP and try to understand which is a better option.
ULIPs- Short term vs long term
- Insurance point of view – Life insurance policies are always meant for long term. As you age, your policy premiums will increase. In an ULIP, the amount of money that goes for life cover will increase as you age. This makes buying ULIP for a short term an expensive option. If you are young, subscribing to it for a long period can make sure you get the lowest of premiums for a long time.
Your health also deteriorates as you age. Most life insurance policies, including ULIPs, require medical check-ups. When you are young, you tend to have fewer health problems, and this could also give you a lesser premium price. This advantage might not exist as you age.
- Initial costs – ULIPs tend to have higher initial costs that could offset returns for the first few years, which again points towards the advantage of choosing a longer tenure. The charges related to ULIPs decreases with year and more money will go towards the investment part.
- Market fluctuations – The investment part of ULIPs have similar characteristics as that of a mutual fund. That means market fluctuations in short term might affect the overall returns. Just like mutual fund investment, over a long period of time, the growth with offset minor market setbacks and you could end up with substantial money growth.
- Lock–in period- ULIPs come with a five-year lock-in period which is meant to encourage investors to stay invested for a longer period. After the lock-in period, investors can make partial or complete withdrawals from ULIPs. This also helps in encouraging a disciplined investing and money saving approach.
What should you choose?
Although the final decision on ULIPs is depended on your investment choices, they clearly give you more benefits for long term investments. Even the lock-in period of five years, which is substantially more than most mutual funds, is suggestive of encouraging investors towards long term investment.
How to buy ULIP policy?
Buying an ULIP plan is as easy as buying any life insurance plan and most insurance providers let you complete the whole process whole. While the chronology may vary from insurer to insurer, here are the steps for you to buy an ULIP plan.
- Go to a trusted insurance provider website or app. Make sure you choose a provider with a proven track record for surety and safety.
- Register on the website or app with your basic details, including your name and contact details.
- Compare the types of ULIP plans, weigh all the benefits of ULIPs and choose a plan that suits you. You could take the help of an insurance advisor too.
- Do a mandatory KYC. You might need identity proof and address proof for this. Since there is an investment element involved, you would need a PAN card as well.
- Provide the necessary medical details. The insurer might ask you to do health checkups for the determination of eligibility and premium price.
- Once the medical documents are submitted, you can choose a fund to invest in. Again, you can take the help of an advisor if you are confused.
- Once that is done, your premium will be decided, and you can pay your first premium to start your policy.
ULIPs are a wonderful dual-benefit investment tool, especially if you are looking for a long-term investment. If you are thinking of buying an ULIP plan, think no more! Buy one today and start enjoying the ULIP benefits.