What Factors Affect an Investor’s View Towards ULIPs?   

When you start making your own money, you learn financial planning and understand how to allocate your funds. Due to the rising inflation, it is not enough to simply have money in the bank. Instead, it is essential to have investments that offer sufficient returns unlike traditional investments like Fixed Deposits (FDs). At the same time, if you have dependents, you will also want to secure them financially by purchasing life insurance. With the ever-existing expenses, it can be difficult to have investments and insurance plans in place. This is the reason why several people have started buying a Unit Linked Insurance Plan (ULIP). It is a financial product that offers life insurance and investment opportunities under a single plan.

The meaning of ULIP in simple terms is life insurance that also offers the policyholder opportunities for investment. When you buy a ULIP, you pay premiums similar to any other life insurance policy. However, the premiums are utilised differently. A part of the premium you pay is used towards providing you with a life cover. While the other part is invested in funds that you have selected.

The life insurance aspect of ULIPs is easy to understand. Within the duration of the policy, if the policyholder loses their life, the nominee gets the death benefit. The death benefit in ULIP is either the sum assured or the fund value of the plan, whichever is higher. On the other hand, ULIP has a lot to offer as an investment. Read further to understand the factors that affect an investor’s view towards ULIP.

What factors affect an investor’s perception of ULIP?

Being an investor, there are several factors that you have to access before investing in any instrument. The investment structure of a ULIP plan is unique and beneficial to every investor. Here are some factors you need to know about before investing in ULIP:

Generates good returns

Since ULIPs are linked to the market, the returns an investor gets from them depend on market performance. Based on an investor’s risk appetite and investment goal, they can invest broadly in either equity, debt, or balanced funds. Staying in the long run and investing in a disciplined manner lead to yielding good returns from ULIP in the long haul. Investing in equity funds comes with high risks but also high returns, while debt funds are safe investments that offer lower returns than equity. There are also balanced funds that consist of both equity and debt fund allocation. You can use a ULIP return calculator to get an estimate of the returns you earn from your desired funds.

Different investment options

When you invest in a financial instrument, other than the returns, one of the things to consider is how rigid or flexible the instrument is. ULIP is one plan which provides enormous benefits to investors when it comes to flexibility. When you are saving and investing, you want funds in your portfolio that you can access during emergencies. Most traditional investments like Fixed Deposits (FDs), do not allow pre-withdrawal. Instead, they require you to surrender the entire investment instead. ULIP on the other hand offers free partial withdrawal after the lock-in period of five years. This ensures that the policyholder can access their ULIP fund allocation in case of emergencies.

Switching your fund allocation

Unlike typical investments where you cannot modify your allocation, you can switch your ULIP fund allocation anytime you want. Since ULIPs are designed for the long haul, the plan does take into consideration that your financial goals evolve over the years. You can use a ULIP return calculator while switching your fund allocation to find the changes in returns.  If you had invested in equity before and now want to switch towards a safer debt fund option, you can do that with your ULIP. Since they are directly linked to the market, the ability to switch funds anytime is useful to investors. You can also switch from debt funds to equity funds. Most insurance companies allow you to switch your allocation for free two to three times during the entire policy duration.

Once an investor understands the meaning of ULIP and what it has to offer as an investment, most prefer to include it in their portfolio. There are several additional advantages also that you get as an investor when you include ULIP in your portfolio, like tax advantages.