ULIP products offer dual benefits of protection coverage along with an investment component. The insured pay a certain premium either monthly, semi-annually or annually for a period of around 5 to 15 years. A small portion of the premium goes toward your account maintenance charges such as policy administration, fund management, allocation, change fees, and the rest of the amount goes toward protection coverage and investing in market-linked funds. These funds are generally classified as portfolio equity, debt, or balanced funds.

Depending on an individual’s risk appetite, the policyholder may choose high-risk funds that provide more equity exposure or debt-oriented funds that are low risk. Premiums are pooled to form a unit fund, where units are allocated to investors and a Net Asset Value (NAV) is declared, which varies daily based on the fund’s performance.

Here are some tips to keep in mind when opting for a ULIP policy:

risk appetite

This factor depends entirely on your source of income and the future needs of your family. It could be buying a new house, the educational needs of the children, having a car, etc. Second, if you know the market dynamics, you can go for the aggressive stock-based ULIP. Otherwise, those who are risk averse should go for debt-based ULIP funds.

personalization

A future cannot be predictable, but a problem can surely be prevented. Make sure your product offers enough flexibility to change the term of the policy, the amount insured, and the frequency of premium payments. Also, your plan should offer flexibility in asset allocation. ULIP which allows most free changes and redirection option within a year is preferable.

performance tracking

Just like your parents took care of you from childhood, you must also continue your ULIP plan from the day of purchase. With the charges being cut from time to time, he is likely to make better profits. There is always the possibility of reaching a more profitable deal. He can take a call about changing funds and work accordingly to improve your returns.

Claims Settlement Ratio

Even if you have done extensive research before purchasing a policy, all your efforts will be wasted if he cannot help you or your representative with the desired claim amount. Therefore, it is important to choose an insurer that is backed by an excellent history of claims settlement.

lockout period

In general, ULIP is classified to meet medium and long-term objectives. Some people go for short term plans and expect high returns which is quite skeptical as returns are based on market performance. In order to obtain good returns, it is advisable to remain invested for a minimum period of 8 to 10 years.

Accomplishing goals

You need to remember that buying UIP for the sake of coverage protection or tax benefits will not do you any good. Life insurance coverage at ULIP may not be enough when you meet real life goals. You should consider it, opting to meet bigger, more important and long-term life goals. It is a pure form of investment and not a quick teller.