As far as the unit linked insurance scheme is concerned, it should be a vital one that is linked to the capital market. Being a market-linked product, the ULIP provides an excellent opportunity to invest in equities and debt related instruments. The dual benefit of investing in ULIPs has made them one of the most attractive investment options in the market of late.
It is important to note that the annual charges of ULIPs are capped at 2.25 percent, according to the commendations of the IRDA. However, of late the unit linked plans have emerged as one of the cheapest investment options, thanks to the slashing of the commission rates by a string of insurance firms.
Also, it is equally important to note that many ULIP websites provide a comprehensive ULIP calculator. The calculator is meant to assist the policyholders to better comprehend the amount of the cover they need.
Also, the calculator is extremely helpful for computing the future value of a particular investment. All a policyholder needs to do is enter the investment amount, the investment frequency, the tenure of the investment policy and the annual rate of returns and the calculator trots out the suitable investment policy for the customer.
What are the Types of ULIPs?
The unit linked investment plans are broadly classified into four categories or types:
- Retirement ULIP: As the name itself suggests, the investment plan is meant to cater to the financial needs of superannuation. The policyholder needs to shell out the payment during the tenure of the policy in order for it to be hoarded up in the corpus.
- ULIP for Wealth Accumulation: Primarily aimed at the aspect of wealth accumulation over time, the plan, generally speaking, is best suited for people in their twenties.
- ULIP for Education: As the name suggests, the fund is especially meant for financing children’s education. It offers a considerable financial shield in order for one’s child to pursue his or her education without a hitch.
- ULIP for Health: The unit linked plan is certainly one of the most affordable and flexible insurance policies when it comes to attending to medical exigencies.
Why Go for ULIPs?
Generally speaking, the following features of the unit linked plan make them one of the most attractive fund choices:
- First and foremost, the unit linked plans are best known for their transparent nature and equally transparent charges.
- Secondly, one of the most remarkable features of the unit linked plan is that they are extremely flexible. In other words, policyholders can switch between funds, according to their choice.
- The unit linked insurance plans offer a variety of premium payment frequencies. The quintessential in cover potion makes one of the most fetching choices.
- The most user-friendly feature of the unit linked plan is that it caters to both risk takers and the more moderate players. As a result, the plan has a plethora of fund options in order to cater to both schools of investors.
- Also, the plan has riders for additional coverage. Apart from that, the plan provides a comprehensive range of tax benefits.
What are the Charges for ULIP?
In order to respond more fully to the features aforementioned, it is important to take a look at the charges:
- Premium Allocation Costs: These include the initial costs charged by the company while first issuing the policy. The said charges are imposed beforehand on the particular plan.
- Policy Administrative Costs: These costs are deducted on a regular basis in order to meet the expenses borne by the company for running the insurance policy.
- Surrender Costs: These are meant to be deducted for full or partial encashment of premature units according to the policy documents.
- Mortality Costs: As the name suggests, these are meant to be borne by the concerned insure in order to furnish a life cover for the insured.
- Fund Management Costs: These are primarily meant for meeting with the expenses incurred due to the maintenance of the fund.
- Discontinuance Costs: These are charged on premature discontinuation of the policy within the lock-in period.
In order to better utilize the features and benefits of the unit linked plans, it is important to consider the engine that drives the procedures of the ULIP. Also, the concerned policyholder should always be cognizant of the entry and exit charges of the policy. Before investing, the policyholder should be as clear as possible regarding his or her investment goals.
Generally speaking, it is always recommended to scroll through the performance of a particular policy in the last few years before jumping to investing in the same. The benchmark indices and other factors should be taken into consideration in order to better analyze the knick-knacks of the investment policy.
Omaikano Sammuel is a project manager and business coach with years of experience. So far he has clients in over 150 Countries