How should you choose your ULIP fund?

Posted by sakhi sawant on September 12th, 2016

ULIP products offer dual benefits of protection cover along with an investment component. Policyholders pay a certain premium either monthly, half-yearly or yearly basis for a term of around 5 to 15 years. A small portion of the premium goes for your account maintenance charges such as policy administration, fund management, allocation, switching charges and the rest of the amount goes for protection cover and investment in market-linked funds. These funds are generally categorized as equity, debt or balanced fund portfolio.

Depending upon an individual’s risk appetite, the policyholder can either opt for high-risk funds that provide more exposure to equity, or debt-oriented funds that are low at risk. The premiums are pooled together to form a unit fund, where units are allotted to investors and a net asset value (NAV) is declared, which vary daily on the basis of the fund performance.

Here, are a few tips to consider while opting for a ULIP policy:

Risk Appetite

This factor completely depends upon your income source and family’s future needs. It could be purchasing a new house, child’s educational needs, owning a car, etc. Secondly, if you know market dynamics, then you can opt for the aggressive equity-based ULIP. Else, who are risk-averse should go for debt based ULIP funds.

Customization

A future can’t be predictable, but a problem is surely preventable. Ensure that your product offers enough flexibility to change the tenure of the policy, sum assured and premium payment frequency. Also, your plan should offer flexibility in the asset allocation. The ULIP that allows most free switches and redirection option in a year are preferable.

Performance Tracking

Just like your parents nurture you right from childhood, you also need to take carry on your ULIP plan right from the day of purchase. With charges being trimmed from time-to-time, you’re are likely to earn better returns. There is always a possibility of striking a more profitable deal. You can take a call on fund switching and accordingly work for  the betterment of your returns.

Claim Settlement Ratio

Even, if you have done extensive research before buying a policy, but all your efforts will go in vain if it can’t help you or your nominee with desired claim amount. Therefore, it is important to choose an insurer who is backed by an excellent claim settlement track record.

Lock-in Period

Generally, ULIP is categorized to meet medium to long term goals. Some people go for short-term plans and expect high returns which is quite skeptical as the returns are based on market performance. It is advisable for good returns you should stay invested for a minimum of 8 to 10 year period.

Meeting Goals

You should remember that buying UIP for the sake of cover protection or tax benefits will not go well for you. The life insurance cover in ULIP might not be sufficient when you meet any real life goals. You should consider it, opting to fulfill bigger, important and long-term goals of life. It’s a pure form of investment and not a quick cash machine.