Unit-linked Insurance Plan commonly known as ULIP is a market-linked product which combines the best of insurance and investment in a single product. It is an effective investment plan that offers consumers the flexibility to invest in debt or equity funds as per their risk appetite. Of late, ULIPs are getting sold like hot cakes in the financial market, and these are likely to remain the same as compared to other wealth management products. So, what makes ULIP one of the most interesting wealth management products Let’s put a critical view on it:
An Insurance Cover Promising Good Savings
To begin with, ULIPs offers life insurance, which is clubbed with market-linked returns. In this way, a ULIP plan offers consumers dual benefits – life insurance cover along with an investment option. This is like investing in a mutual fund along with a life cover at the same time. In this sense, investing in ULIPs can be a win-win situation for consumers who are looking to invest and grow their wealth.
Multiple Investment Options
ULIPs can give you a great diversity as compared to traditional life insurance plans. You get numerous choices as you can find ULIPs often in three broad variants, which include:
- The Aggressive ULIPs that allows you to invest 80% to 100% in equities, and balance in debt funds
- The Balanced ULIPs that usually allow you to invest around 40% to 60% in equities
- The Conservative ULIPs, which typically allow you to invest up to 20% in equities
While this is often the way ULIPs are designed, but the real debt or equity allocations could vary across different insurance companies. You can choose a variant based on your risk profile. For instance, a 30-year old consumer keen on buying a life insurance plan, which also helps him in building up a corpus for his retirement, can consider investing in the domain of balanced or even aggressive ULIPs. Similarly, risk-conscious consumers who are just not comfortable with high equity allocation can go for conservative ULIPs.
You may have this question, “How are ULPs different from mutual funds?”, especially when mutual funds also provide hybrid or balanced schemes. The difference is seen in terms of flexibility, which ULIPs provide. You have the option of switching between the ULIP variants to capitalise over investment opportunities across the debt and equity market. Some insurance companies even allow investors to switch for several times and that too for free. Moreover, you can shift from an aggressive to a balanced fund or a conservative ULIP once your retirement is close.
ULIP Works like a SIP
‘Rupee Cost Averaging’ is yet another critical benefit of ULIP. You must be aware of the Systematic Investment Plan (SIP) which is becoming popular in the mutual fund industry. With the SIP mode, you get the option to invest your money monthly and not worry about timing the stock market. However, not many know that ULIPs can also do the same for you on a monthly, quarterly, half yearly and even on an annual basis.
ULIP is, therefore, an effective wealth management tool with many benefits attached to it. Having understood the benefits of ULIPs, it is vital that you invest in one at the earliest. But before investing, carry out thorough research to make the best financial decision. Put simply:
- Define your goals
- Know your risk-appetite
- Understand and define your investment timeframe
- Go online and compare different ULIP plans
Finally, access the premium and the benefits you can derive from this wealth management product.