ULIP insuranceis steadily becoming a preferred choice for numerous investors because of its dual benefits and future wealth-creation potential. ULIPs represent a more dynamic form of insurance coverage that can help you meet future goals. Yet, just choosing a ULIP for your portfolio is not enough. Proper management of your ULIP throughout the policy term is the key to its success in the future. Here’s a brief guide to the same.
What are ULIPs?
ULIP insurance, or a unit-linked insurance plan (ULIP), is a specialized life insurance solution where investors can earn returns (market-linked) by leveraging investments in a pool of diverse funds.
Hence, ULIPs are basically investment and life insurance plans combined into a compelling proposition for investors. The premium the policyholder pays is invested in chosen debt or equity funds after subtracting applicable fees/charges. Upon the policyholder’s death, the death benefit is paid out to their nominee based on the terms and conditions of their policy.
What are the different ULIP Fund Options Available?
There are many ULIP fund options available for investors. Some of them include the following:
- Equity Funds – These funds mainly invest in the equity markets and listed equity stocks. They may be further sub-divided into mid-cap, small-cap, and large-cap funds. The main goal of these funds is the appreciation of capital due to the market returns linked to equity stocks. However, they are comparatively riskier options for investors.
- Debt Funds – These funds deploy investments in the debt market, including corporate bonds, government securities, and other fixed-income instruments. The risk levels are lower for investors if they go with these funds.
- Liquid Funds – These are called money market/cash funds, investing in assets of a liquid nature, such as short-term debt securities with higher credit ratings or money market instruments. These include bank and cash deposits, commercial papers, treasury bills, etc. They are easily redeemable and are liquid assets, making them suitable for covering short-term objectives. Their returns are comparatively lower than debt or equity investments.
- Balanced or Hybrid Funds – These funds take a hybrid approach toward fund allocation, spreading risks throughout debt and equity instruments. This helps you get higher capital appreciation from equity and reliable future income from debt. The risk levels are moderate due to the balanced approach adopted by these funds.
You can always calculate your returns from ULIP investments by using a ULIP return calculator. Yet, how do you manage your ULIPs like a true pro? Here are some tips and tricks that may help.
Switch Funds as per Your Risk Appetite
The key to successfully managing your ULIP is switching funds per your risk appetite. Self-switching can help you align your portfolio periodically with your risk capacity, plan tenure, and life goals. For example, you can change your premium allocation to various equity or debt funds, balancing out risks from market volatility while optimizing overall returns by striking a balance between these fund types.
Whenever you see a slump in the stock market, you can switch your funds, lowering equity exposure and allocating more to debt funds. This helps you safeguard your money from market volatility. When the stock markets perform better, you can again allocate more money towards equity funds to scale your returns.
If you are investing for a future life goal like higher education of your children or buying a house, then you should invest more in debt funds to keep your wealth secure. Those starting early can allocate more to equity funds to maximize returns and take higher risks. Those advancing in age can allocate more to debt funds to minimize risks while maintaining steady wealth creation simultaneously.
Keep an eye on the fund performance
Successful ULIP management also necessitates periodic reviews of your fund’s performance. You should track the funds the ULIP invests in, their performance in the market, their returns, and so on. You can then switch funds and balance your portfolio accordingly.
Let The Company Manage Your Funds
If you are too hassled to manage your ULIP or do not have the time and energy to devote to managing your investment, let the company take over. Your company will have skilled fund managers at the helm of affairs who will strive to optimize your returns and maximize your investments. A nominal charge is all it takes to avail of this facility.
Avoid Making Frequent Withdrawals
Avoid frequently withdrawing money from your ULIP after the end of the initial lock-in period. This will not only impact your overall returns and any possible bonuses but also cost you more in terms of tax and other charges. Likewise, avoid exiting or withdrawing when your scheme is doing well in the market.
Enhance your policy with riders
You can also boost your ULIP with riders as per your needs and goals. Some of the popular riders include the following:
- Critical Illness – This rider covers specific critical illnesses and is available if the policyholder survives the same by at least 30 days from the diagnosis date. Not that this may change depending on the insurance provider. Check your policy documents to determine the particulars of this rider.
- Accidental Death/Disability – This covers the death of the policyholder by a mishap or accident, along with disabilities resulting from accidents (which do not lead to death).
- Income Benefit – This rider covers income loss in case of the demise of the policyholder. Hence, the family will receive the sum assured upon their death, along with a monthly income for a specific duration.
- Waiver of Premium – This rider covers premium waivers in case of any sudden or unforeseen scenario where the policyholder cannot pay the premium amount. The policy will release the policyholder from the obligation of future premium payments without any termination of coverage.
Note that the Rider offerings vary from one insurer to another, and you may get these or a different set of riders while buying your policy.
Wrapping Up
The goal of a ULIP is to provide life insurance coverage for the policyholder while helping them maximize returns and build a sizable corpus over the long haul. Hence, properly managing the ULIP is vital for achieving future goals and safeguarding investments from market fluctuations/volatility.