Unit-linked insurance plans (ULIPs) are some of the most popular investment options today. This has much to do with their dual benefits of insurance coverage and future wealth-generation capabilities. However, while many of us know quite a bit about what is a ULIP plan, we may have only scratched the surface in this regard.
There are several lesser-known facts about these investments that deserve to be highlighted. This article talks about the same. Yet, before we get down to the brass tacks about some of these facts, it would be a good idea to explore a ULIP plan in more detail. This will ensure some basic information about these investment options before we proceed further.
What is a ULIP plan?
In a ULIP (Unit Linked Insurance Plan), the premium is invested in the market-linked financial instrument of your choice after deducting applicable charges. A ULIP plan calculator is a great tool for determining investments and estimating potential returns.
A ULIP plan can be used for various things, including insurance, retirement, wealth accumulation, and plans for the education of children and grandkids. In these policies, wealth increases in the form of new units that increase over time. Based on the NAV (Net Asset Value), which is established following market trends, each unit has a monetary or maturity value.
Over the past few years, ULIP plans have evolved considerably with the times. As the stock market rises and falls, fund managers pool the money from various policyholders and invest the whole amount in multiple avenues, including stocks, bonds, and debt funds. While the outright risks are balanced through a combination of fund choices, investors also get an option to choose the funds in which they want to invest their money. At the same time, the fund-switching facility enables investors to periodically review their investments and keep aligning their portfolios in line with their future financial objectives. Depending on the market movements, it also works as a risk reduction or profit maximization tool.
For example, suppose the markets start climbing rapidly and witness what experts call a bull run. In this scenario, an investor in a ULIP can switch towards a more equity-oriented portfolio to reap the rewards. Conversely, when the market is in free fall or witnesses a bearish trend, the same investor may choose a higher proportion of debt funds and safer instruments to lower the risks of wealth depletion.
The best part is that throughout this investment journey, the policyholders also get insurance coverage which financially safeguards their families in case of their sudden or unfortunate demise within the policy period. Hence, a ULIP plan is often compared to having what they call the best of both worlds, making it a popular choice for investors over the last few years.
Lesser-known ULIP features
The fact that ULIP plans offer a lot of flexibility and extra benefits should be kept in mind above all else. For instance, investors receive delightful surprises in the form of loyalty bonuses and other unique bonuses at specific policy milestones. Some other lesser-known facts include the following:
- There are up to seven different funds where fund managers frequently swap between funds to safeguard investors from volatility risk. The skill of the ULIP fund managers resides in their ability to predict which funds to invest in and when. To understand investing secrets, one does not necessarily need to keep a close eye on the stock market or have acute business sense. Investors may get the most out of their investments with the aid of ULIP fund managers.
- Single premium option: A small number of ULIP policies allow for a single, one-time premium. Many investors frequently receive sizable down payments or insurance maturity amounts. These may be deployed into ULIPs, likewise. Taxes will be saved as a result, and investors will be able to invest this one-time payment for substantial profits over an extended period.
- Multiple insurance alternatives within a ULIP policy: Term insurance and ULIP components are typically included in ULIP policies. The fact that several ULIP plans combine health insurance may surprise many investors. This is a fantastic chance for investors to purchase life and health insurance in one package. Investors can choose a single ULIP policy to take advantage of all the insurance benefits and maximize their wealth potential.
- Customers may change their ULIPs anytime they wish, while the premiums may also go up or down. There are ULIPs for the higher education of children, their weddings, and your retirement. Many investors do not know that the insurance objective and entire ULIP may be changed for a different payback period, depending on evolving or changing goals and priorities. Those seeking to transform their existing ULIP into a fund for retirement with a pension can also change their policies accordingly, paying a new premium for the same. They do not have to purchase another policy due to this flexibility.
Many ULIP plans offer unanticipated perks and buried details that come in handy. You can use a ULIP policy effectively if you thoroughly understand the options at hand. Instead of blindly going for multiple insurance options, consider purchasing a ULIP. It reduces the need for multiple additions to the portfolio while offering more significant benefits in turn. It can be called a true representation of how insurance has evolved over the years.