5 Critical Factors to Consider While Picking a ULIP Plan

A unit-linked insurance plan (ULIP plan) is a single policy with the dual benefits of life insurance and investment. That is, this one plan can help you secure your loved ones’ future after your demise and generate wealth to meet long-term financial goals.

Besides, by investing in a ULIP, you can enjoy tax benefits as per the Income Tax Act, Section 80C. Premiums of up to ₹1,50,000 paid towards a unit-linked insurance policy in a financial year are eligible for a rebate from your taxable income.

Here are 5 major factors to consider when choosing a ULIP policy.

1. Check the Life Protection Cover

When you buy a ULIP, ensure that the sum assured offers adequate cover to financially protect your family members when you’re no longer there to provide for them. Remember that the component of life insurance in a ULIP plan is as important as the investment component.

2. Pick a Plan with a High Fund Option

When buying a ULIP, you should also ensure that it comes with various fund options. Offering limited market-linked funds reduce the possibility of better overall performance. When you invest in a ULIP policy, you can pick from equity funds, debt funds or a combination of both as per your needs. Equity funds offer a higher potential for long-term wealth creation. Debt funds help you protect your wealth. Hybrid funds allow you to invest in both to avail the opportunity for high returns while also saving your wealth.

3. Choose a Plan Depending On Your Investment Goals

You must carefully outline your financial goals before starting to invest to achieve them. These can be your kid’s higher education, your child’s marriage, buying a dream home, financing your retirement and so on.

Once you determine your future financial requirements, you can easily pick the most suitable ULIP plan aligned with your investment goals.

4. Know Your Risk Appetite

This is a crucial factor to consider when purchasing any investment product. When you buy a ULIP policy, remember that equity funds come with higher risks than debt funds.

You can determine your particular risk appetite based on the following factors:

  • Age
  • Income
  • Financial corpus
  • Multiple dependents

After ascertaining your risk appetite, keep it in mind to choose the most suitable unit-linked insurance plan.

5. Check ULIP Policy Charges

In a ULIP plan, you need to pay the whole amount as premiums. Nothing is used to buy the units. The insurer, depending on its policies, deducts specific charges before allotting its units. The remaining part of the premium is allocated to various asset classes like equities, debt or a mix of both.

Although the fees associated with ULIPs may differ from one insurance provider to another, the common charges that you must look out for, are:

  • Premium allocation charges
  • Fund management charges
  • Policy administration charges
  • Partial withdrawal charges
  • Surrender or discontinuance charges
  • Mortality charges
  • Guarantee charges
  • Switching charges
  • Rider charges

Remember the above factors to select the right ULIP policy from a reputed insurance provider. Consider remaining invested for a long period to boost your chances of getting good returns.

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