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Tips to choose the best ULIP plans for a good investment

dateKnowledge Centre Team dateJanuary 21, 2021 views298 Views
Tips to choose the best ULIP plans for a good investment

The fundamental purpose of picking a successful investment product is to receive the coveted returns. ULIP or Unit Linked Insurance Plan extends an array of advantages and is one of the most backed investment decisions if taken accurately. ULIP works like any other standard insurance policy where you will be required to make the payments according to the policy schedule.

What is a ULIP?

ULIP is an integrated monetary product that extends the best of both the divisions – investment and insurance. Fundamentally, ULIP or Unit Linked Insurance Plan is a composite product administered by insurance companies that gives the twin advantages of security and wealth appreciation. Being a market-linked investment product, ULIP provides its investors’ with opportunities to profit from the capital market. ULIP is structured uniquely when correlated to other insurance products given by the insurance providers. Past performance suggests that ULIPs have usually given a return of 12-15% for long-term investments. Returns from large-cap equity mutual funds have also rendered similar returns over the long term.

How does a ULIP operate?

ULIP or Unit Linked Insurance Plan is known as a market-linked investment plan. It is devised to benefit both risk cover and wealth creation by earning a return on market investment. When invested in a ULIP, an insurance plan, you will make premium payment as stipulated by the product or plan.

The sum invested in the form of the premium is then balanced against the relevant charges mentioned beforehand. A part of the net premium is put down for rendering life cover (which is also subtracted as mortality charges). The other part invested in the capital market through funds comprising equity, debt and money market instruments in varying proportions. Depending upon the plan alternatives and fund choices made available by the ULIP, you can make your investments bearing in mind your risk profile. Each fund will hold a risk rating. ULIPs come with a lock-in duration of 5 years.

When it comes to the ‘investment’ part ULIP pools investors (policyholders) funds and reinvest them into funds chosen by them. The entire corpus of the funds is segmented into units. The units will be allotted to each policyholder in the proportion of an invested value.

Post maturity of the ULIP, the investor will obtain the fund value on the date of maturity. The fund amount is the total cost of all the fund units across all the investment funds opted in the policy. In case, investor expires during the policy period, then the nominee chosen in the policy or the heir of the policy will get the following amount:

  • Fund amount on the date of death
  • Sum guaranteed (pre-agreed)
  • 105% of cumulative premiums paid till the date of death

Who can invest in a ULIP?

Although ULIP extends flexibility to the investor, it is fundamentally a long-term investment product. ULIP is excellent for investors of any risk profile and people looking for extra insurance cover and market investment possibilities. ULIP invests in the capital market. However, the investor needs to have convenience and flexibility to pick based on the risk profile and the basis of particular financial goals. ULIPs are well suited for investors with long-term and medium financial goals such as higher studies, retirement, dream holidays, etc. In short, ULIPs are suitable for:

  • Investors holding medium-term and long-term extents for investment
  • Investors of any risk profile
  • Investors of all age across all life stage
  • Investors seeking risk cover along with an investment
  • Investors who would wish to monitor their investments closely.

How to find the Best ULIPs?

Receiving the best possible returns are of any investors purpose. ULIPs can be a transcendent choice to maximise your returns and generate wealth over the long-run for meeting your life goals. As the product is structured uniquely to render the triple benefit of life protection, wealth creation along with tax efficiency, ULIPs can be an ideal choice for investors of any risk profile and at any life stage. However, certain things to consider while making the apt choice among many ULIP options available in the market. Given are the things to keep in mind while choosing the most suitable ULIP:

  • Get the appropriate amount of life protection

    ULIPs being an insurance product secures your family by extending life cover. This life cover is provided to ensure that your loved ones are financially secured, even when you are not around. Ten times of the ULIP premium can be used as minimum life cover. Along with complete protection plans that you already hold, you can get some extra coverage through ULIP investments. It is necessary to read your coverage terms and conditions before you invest to suitably cover you.

  • Determine your investment goals

    It is essential to plan your investments prudently to accomplish your life goals. Be it your life post-retirement or your child’s vision of becoming a doctor or purchasing your dream; each life event must be outlined carefully. It’s important to establish your goals and start making investments respectively as you get the precision on the time limit and the estimated funds you require to meet the goals. You can pick the ULIP that suits your goals in each parameter.

  • Know your risk-taking capacity and choose funds accordingly

    Risk-taking ability is the essential factor to be examined when making ULIP investments that are market-linked. It is a well-known phrase that higher the risk higher is the repayment. Also, at a young age, one can manage to take comparatively more risk. To be aware of the risk capacity it is necessary to choose the best fitting ULIP and determine the most suitable investment capital. There are also fund switch choices offered by ULIP. Contemplate the number of free switches available so that you can switch from one fund to another depending on the market situation and your dynamic needs.

  • Estimate the fund performance and financial steadiness of the insurer

    While determining the ULIP, review the fund performances of the ULIP you have taken. Specifically, the consistency of fund performance must be examined to learn how the fund reacts to market fluctuations. Although the preceding performances are not the implications of future performance, it gives you an impression on what to anticipate. Likewise, it is also vital to examine the insurance provider’s financial soundness and solidity while picking ULIP by glancing at the solvency ratio.

  • Compare on the cost-benefit grounds.

    ULIPs are available with attractive features and advantages such as riders, top-ups and numerous more. It is important to analyse the characteristics of various ULIPs alongside their cost as it can assist you in making a smart purchasing choice.

  • Kinds of ULIP Plans in India

    ULIP can be classified on the grounds of mortality benefits, the purpose of investment and fund alternatives.

    1. Type I ULIP: In this type, the policy returns the higher amount of fund value or sum guaranteed as a death compensation to the nominee, on the death of the policyholder.

    2. Type II ULIP: In this type, the policy pays the amount assured + fund value as the death benefit to the nominee, on the demise of the policyholder.

Reason to invest in ULIPs

ULIP investment comes with various advantages. People of any life stage with any risk profile can count on ULIP for their long-term monetary goals. Some of the significant reasons to invest in ULIPs are as follows:

  • To maximise returns

    ULIPs are market-linked products, wherein you can decide to invest in diverse financial instruments through fund options available. Based on your risk profile, you can prefer to invest in a debt fund, equity fund, balanced fund or cash fund. Depending on your preference of fund and the risk category, your returns will range. You are also entitled to switch from one fund to another throughout the policy cycle. As the investment is market-driven, there is a possibility to maximise your returns based on stock market performance.

  • For life protection

    As ULIPs are combined products, life protection is fundamentally offered simultaneously with an investment factor. With the mortality benefits, ULIP ensures the family of the assured/investor is financially stable even when the assured is no longer around in this world.

  • To accomplish long-term financial goals.

    Investments in the capital market through ULIP can gain better in the long-term and help the investor achieve several long-term objects such as retirement, higher studies and marriage etc.

  • For tax advantages

    Besides every other advantage, the tax benefit is eye-catching for many people. ULIPs is a transcendent way to diminish tax outgo as the premium paid fits for tax deduction under section 80C of the Income Tax Act, 1961.

Choosing the best ULIP is essential, and to pick the right ULIP, one must assess his or her obligations and ability to handle risk. ULIP strikes a great equilibrium between insurance and investment. It helps you guard your family, obtain long-term financial goals and maximise your returns.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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