Choosing an ideal financial instrument for creating wealth and securing your future is not as easy as it sounds. But then again, it is not as complicated as you think it is. We tend to get overwhelmed due to the huge number of options available these days. In this context, it can be said that a ULIP or unit-linked insurance plan is worth considering for its unique features and higher flexibility. The best part is that it blends investment returns with adequate life coverage for maximum benefits. How to select the right one? Read on for more.
1. Knowing Financial Objectives Carefully
Before delving more into ULIP features, write out your goals first. These could include home purchases, higher education, children’s weddings, retirement savings, etc. Your goals will impact the final ULIP choice.
2. What’s Your Risk Quotient?
Your choice of ULIPs depends largely on your risk tolerance levels. You must know that these instruments have investment choices across debt, equity, or hybrid funds (a mix of both). You should choose based on the risk that you can comfortably take, without compromising your financial circumstances. If you are comfortable with higher risks and want good long-term returns, you may consider equities, while debt funds are ideal for low-risk investors, although their returns may be lower in comparison. Hybrid/balanced funds are also suitable for investors with moderate risk levels. The allocation aspects should be carefully finalized while choosing ULIPs and also make sure that there is professional fund management in place. Funds should also be flexibly switchable depending on the market circumstances.
3. Assess Your Horizon for Investments
Whether your ULIP will be successful depends on your investing horizon. They are usually good options if you stay invested for longer durations. This is mostly due to the power of compounding and the 5-year lock-in period. This has to be extended to ride out temporary market fluctuations successfully and get more returns. Balanced/debt funds are ideal options if you want to achieve goals within 5- 7 years, while equities are better choices for 10 years or more horizons.
4. Check the Charges and Features of Policies
Multiple insurance companies offer diverse policy features, including fund-switching, partial withdrawals, top-ups, and a lot more. These features enable higher flexibility and enable you to adapt plans to changing life circumstances. You should also have a proper understanding of the ULIP charges that are applicable, inclusive of mortality charges, fund management costs, premium allocation charges, surrender charges, etc. Choose plans that have these charges outlined transparently in order to grow your investment successfully.
Conclusion
Choosing the best ULIP will involve syncing the features of the plan with your specific financial objectives, risk tolerance levels, and horizon for investments. By investing the time necessary to evaluate all these aspects, you can select plans that help safeguard your near and dear ones, while contributing immensely towards long-term wealth creation.