Do's And Don't of Buying Unit-Linked Insurance Plans (ULIPs)
Updated On Aug 27, 2022
Table of Contents
A market-linked investment option called a ULIP combines the advantages of both life insurance and stock market investing. It provides the freedom to invest in a variety of securities, including stocks, bonds, and other types of securities. Your life insurance premium is partially used to pay for your ULIP plan, and the remaining funds are invested in the stock or debt markets depending on how much risk you are comfortable with.
The fact that ULIP plans are goal-based investments and may be used to accomplish a variety of long-term financial goals, including tax planning, retirement planning, insurance planning, investment planning, and preparing for the education of children, is another distinctive feature of these plans. To know more about buying ULIPs, read on.
How Do ULIPs Function?
For ULIP insurance, two-thirds of the premium is paid. One component goes toward establishing life insurance coverage, while the other piece is placed in the stock market. The insurer receives cash from a large number of policyholders and invests them in a range of funds that the policyholders had chosen. Since fund managers oversee the investments, there is no need to keep track of them. The reservoir is split into smaller units having a specific face value after the money has been invested. Each investor receives a certain number of units in proportion to their investment. Net Asset Value (NAV) is the price of each unit at a specific period. The NAV changes in accordance with the value changes of the underlying assets.
What Are The Do's Under ULIP Plans?
Following are the do’s under ULIP Plans -
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Assessing Requirements
Accomplishing the ULIP investment problem begins with a thorough assessment of the requirements. Check your essential needs, such as if you need money for a wedding, an education, or to meet urgent needs. When investing in ULIPs, the funds you choose should be determined by your needs. Yes, you can select from a variety of funds while investing in ULIPs to gradually increase your wealth. Depending on your risk tolerance, you may pick between equities, debt, and hybrid funds. Continue reading as we go through these below.
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Examining Risks
A proper risk assessment is essential to choosing the best ULIP product. Pick one of the top-performing equities ULIPs if you want to invest for a long time and have a high tolerance for risk. These invest primarily in equities that provide a high-risk, high-return opportunity.
Debt ULIPs should be a part of the financial portfolios of those with minimal risk tolerance. These ULIPs generally invest in debt securities like government bonds, debentures, or other types of debt. People with varying levels of risk tolerance may want to think about investing in hybrid ULIPs, which invest in both equity and debt products.
What Are The Don'ts Under ULIP Plans?
Following are the don’ts under ULIP Plans -
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Influence Of Numbers
Numbers are important because they shape people's perceptions of financial products, especially ULIPs. However, focusing just on the figures and failing to make investments in line with your needs and level of risk tolerance might hurt you. In addition, a lot of people are persuaded by short-term gains and choose investments that subsequently fail to meet their return expectations. Examine the ULIP plans' returns over various time periods to determine which one has consistently performed well.
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Reviewing Investments
Be prepared to experience a few bumps along the road as an investor while investing in ULIPs. especially if you invest in equities funds where returns might vary excessively depending on the state of the market. Be patient and let your investments keep working so they can grow significantly in the future. The appropriate fund selection is the key. And if you've followed suit, these variations shouldn't trouble you.
Endnotes
In the event of an unexpected death or impairment of the family's primary breadwinner, a life insurance policy serves to safeguard the family's financial future. Along with offering security, ULIPs also assist you in building wealth to achieve your financial objectives.
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