Personal goals and financial protection are two things one strives for. Investing adequately for future needs is important for every investor. While individual goals and financial protection can be dealt with separately, choosing the right investment product is the key. To purchase a home or dream car, you must make the right financial investment at an appropriate time to fulfill your goals. Unit-Linked Insurance Plan (ULIP) is a valuable investment instrument to help you cater to your financial needs.
ULIP is a market-linked insurance plan suitable for meeting long-term financial goals. Its multiple features make it an apt investment option for achieving personal goals.
Features of ULIP
Your financial needs will vary with age. Your life goals will change as you earn, marry, and have children. For different life stages, the financial needs will increase. ULIP investment has features like multiple fund options, partial withdrawals, and other premium payment modes that suit your savings cycle. At the end of the lock-in period, you can make tax-free partial withdrawals, and as you get closer to your goals, you may withdraw partially to meet the purpose.
You may opt for policy term options that suit your needs based on your requirements. You can choose from a single premium to a limited premium term. The fixed excellent term will require you to pay a premium for a particular period, but the policy term could be longer. ULIP plan also has a top-up policy where you can avail of additional coverage with a higher premium. It will help increase the life cover at a low cost. They are usually charged at 1-2 percent, much lower than the premium originally committed. You will be able to buy additional units at a comparatively lower cost. If you buy a new ULIP, you will pay much more, making it wiser to buy a top-up that increases coverage at a lower average price.
How to plan your ULIP investment
Plan your ULIP investment based on your financial goals. You can choose the systematic mode for investing in ULIP. Based on your long-term financial goals, you need to estimate the amount required to meet them. Consider the impact of inflation and determine your insurance requirement. Take each plan systematically and choose the insurance amount. Based on the sum assured, consider the premium you must put in to meet the need. The minimum sum assured should be ten times the premium, but you can also take coverage of 15-20 times the premium for life goals.
How does the fund work?
The premium paid is invested into one or more funds, a ULIP. Most ULIPs have five to nine fund options with different asset allocations between debt and equity. Inequity funds, there could be large-cap and mid-cap options. Equity funds also have mid-cap options with thematic exposure. There are liquid, short-term, and long-term debt funds to choose from in debt fund options. You can switch between the funds, and there will be no tax liability. However, it is advised not to shift the funds repeatedly to achieve long-term goals. It isn’t easy to time the market, and every time it moves a few points up or down, it does not call for a switch in the fund. You could make a wrong move with a button when the market is highly volatile.
For your long-term goals, say goals ten years away, you must opt for large-cap funds as they invest in blue-chip companies and are less volatile. You can choose diversified funds in ULIPs as well. When closer to your goal, you can shift from equity to debt funds to reduce the volatility. Doing this will reduce the risk attached to your investment and reach closer to the goal. Many ULIPs offer tools that ensure your investment is linked to your life stage. At a younger age, the premium allocation will be higher inequity; the same will reduce and move into debt funds as you age.
It is not important to invest in different ULIPs to meet other goals. If you choose the right ULIP and use it well, you can meet all your goals at different life stages. Each new purchase will have an administrative cost associated with it, and this can be avoided if you have all your investments in one ULIP. It is also easier to manage one investment as compared to different ULIPs. The transparency and flexibility associated with ULIPs make them an ideal investment option. Research the best ULIP plan in India and consider whether it meets your financial needs. However, you must buy it for the right reasons and choose the tenure wisely. Based on your long-term goals, you can make a timely investment in SIP and get closer to achieving those goals. With ULIP, you can fulfill your dreams and gain financial protection over the years.
