Understanding ULIPs and their Benefits

September 26, 2022

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

Unit-Linked Insurance Plans (ULIPs) serve as an investment-cum-insurance financial tool. They allow policyholders to grow their wealth over time through investments in equities and debts. Additionally, they provide life coverage for the policyholder. Let’s understand the benefits of ULIPs.

Benefits of ULIPs

• Financial Independence

  ULIPs could help you build a corpus for your retirement. Investments you make today will enable you to remain financially independent even once you stop earning a regular income.

• Life Coverage

  Crucially, ULIPs offer life coverage, providing your family with financial stability and security when they need it most.

• Investment Flexibility

  When you invest in ULIPs, you choose how much of your money gets invested in various funds. You can opt to put all your money in equities or debts. Most people choose a mixed fund, which invests in a mix of debt and equity funds. As the policyholder, you decide how much of your money gets allocated to each type of fund. You can change your investment allocation based on market conditions to maximise your returns. HDFC Life’s Click 2 Wealth is one such ULIP plan which offers a choice of 11 funds and unlimited free switching option.

How to Choose the Ideal ULIP

Given the number of options available in the market, finding the ideal investment plan can seem overwhelming. Before you select a ULIP, you must consider:

• Your Financial Goals

  Think about why you’re investing. Consider whether you want to invest for a few years or decades. If you’re investing for your retirement, you’ll likely want to invest in avenues that offer high rewards with minimal risk.

• Your Risk Appetite

  Every investment tool comes with inherent risks. Decide how much risk you’re willing to take, and select a ULIP and fund options accordingly. An equity-heavy portfolio could work if you’re open to high risks. You may want to stick to debt funds if you are risk-averse. Ideally, find a balance of equity and debt instruments that provide the returns you’re looking for without exposing you to too much risk.

• Maintenance Charges

  Insurance companies charge a maintenance fee that helps them manage your ULIP investment. You want to select a plan with competitive charges to make the most of your investment amount.

  Unit-Linked Insurance Plans provide decent returns for your long-term goals. Additionally, they provide several benefits, allowing you to make the most of your idle money while planning for the future.

ARN: ED/08/22/28597