There are some things that an investor should keep in mind while choosing the best ULIP plans in India. Here’s a list of some pointers to consider while buying one:
Analysis of Personal Investment Goals
Before choosing a ULIP plan; it is a pre-condition for every investor to analyze their long-term financial goals. It is mandated to opt for a ULIP that is in sync with the investment horizon and the investment goals.
Decide Insurance Objectives
One should first decide the insurance objectives and then select a ULIP plan that fulfils them. If one is young, current as well as future family requirements need to be considered because the insurance cover should be adequate if something happens to the insured. Family planning, i.e. the number of children one plans to have is an important consideration. It is imperative to understand that ULIP is a long-term investment product. Therefore, one should be clear about the investment and insurance objectives when putting money in a unit linked insurance plan to get the maximum benefit from the investment.
Decide Investment Goals
Investment goals are extremely important. One should spend sufficient time and think before in deciding these goals. This exercise, if done well, makes the process of choosing ULIPs easy. Investment goals may vary from having a corpus for the higher education requirements of the children after some years to having sizeable funds for the child’s marriage. They may also include having the requisite amount of money for post-retirement needs. Utmost importance should be given to one’s investment goals. Once these goals have been decided, one can look for ULIPs with their benefits which fulfil the goals adequately.
Compare ULIPs
Every ULIP has its own set of features and benefits. A thorough comparison is must to choose one that is best for one’s individual requirements. The comparison can be done in the traditional offline way or online using one of the many online insurance comparison portals. The websites rank and compare plans of different insurance companies on parameters such as sum assured value, policy term, different charges and bring to the fore, the many differences in ULIP plans.
The investor can also make use of the ULIP Calculator to calculate the returns on the investment to make a well-informed and wise decision.
Flexibility
Yet another factor that is to be taken into consideration while choosing a ULIP plan is the flexibility that is offered by the intended unit-linked plan. Here are two things that the investor must take into account to compare ULIP plans on the parameters of flexibility:
Policy Tenure Flexibility: Many ULIP plans are long-term; resultantly, they tag along with a lock-in period of 5 years. Before investing, investors should analyze the investment horizon. Based on the intended period of the investment, they should pick the best ULIP from a variety of plans available at their disposal.
Investment Flexibility: The unit-linked insurance plan allows the policyholders to pick the investment options even before investing in their intended unit-linked insurance plans. Basis of the risk appetite the investors can choose from hybrid, equity, or debt ULIP plans.
Evaluate Risk Profile and Financial Stability
It is important to appraise one’s own your risk profile and financial stability before choosing a ULIP plan. Younger people who typically have higher risk appetite can go in for plans which are more equity focussed to the extent of 100% equity allocation. Those people for whom financial stability is of prime importance will do well with a plan that primarily invests in debt instruments which provide stability albeit with limited returns.
Understand Different Charges Levied
While choosing a ULIP plan from the best ULIP plans available, understand the charges well. These include initial charges, premium allocation fee, fund management fee, surrender charges, mortality charges, and administration and service charges. Proper information and knowledge about charges helps to filter and choose the right ULIP plan.
Be Well-Versed with the Features and Benefits of a ULIP Plan
Every ULIP plan is different. Each plan has distinct features and benefits. Having a proper understanding of the pros and cons of each plan makes the decision to choose a unit linked insurance plan easy. One is able to find a better fit based on personal requirements if the characteristics are understood well.
Check the Performance of the Plan
Finding out the performance of a ULIP plan under consideration is a good idea. One can refer to the performance of last three to four years. It gives a fair idea about returns that one can expect from the plan. The returns should also be compared to benchmark indices like the Nifty of the NSE and the Sensex of the BSE.
Solvency Ratio
The solvency ratio of an insurance company shows that whether the company will be able to honor its claims in the future or not. As per the IRDA guidelines, the insurance company must have a solvency ratio of at least 1.5.
Claim Settlement Ratio
The claim settlement ratio refers to the percentage of claims settled by the insurance company as compared to the total numbers of claims received by the company. Claim Settlement Ratio = No.of claim settled/ No.of claim received X 100
Performance of ULIP Funds
As ULIP is an insurance cum investment product, it is important for insurance holders to review the performance of the funds over the long-term. In a ULIP plan, the policyholder can invest in equity, balanced or debt fund as per their risk appetite and investment time horizon. By keeping a track of fund performance, the investors can make a better investment decision and can gain the maximum return on investment over a long-term period.
Investment Strategies Offered
There are many ULIP plans which provide an opportunity to make a strategic investment like if you want to create a financial cushion for retirement then you can invest in retirement ULIP plan or if you want to make an investment to provide financial security to your child then you can invest in a child ULIP plan.
