ULIP Plans: A Complete Guide to Investing Smartly

ULIPs are insurance cum investment plans which allow you to invest to meet your long-term financial commitments along with providing life insurance coverage. The premium amount paid is invested in the funds opted for, & the rest is allocated towards life insurance coverage. It also provides an option to switch between the funds with your changing requirements & the life milestones you reach. The funds invested generally cannot be withdrawn in the lock-in period, i.e. 5 years, & a surrender fee is charged in case funds are partially withdrawn before 4 years. 

In case of a sudden demise of the policyholder, the beneficiaries will receive the death benefit or the fund value, whichever is higher. In case the policyholder survives the policy, the policyholder will receive the fund value that would have been accumulated depending on the fund’s performance.

How to Select the Best ULIP in India?

Provided below are the steps to select the Best ULIP Plans in India:

• Your long-term financial objectives & investment options should be well aligned with the ULIP opted for.
• Analyse the long-term financial requirements of the plan to be opted for & then choose a ULIP that best suits your requirements.
• Compare the features & benefits of the available ULIP plans.
• Select the equity, dent, or hybrid plans depending on the investment options after properly evaluating the flexibility of policy tenure.
• Check out the different charges applicable, such as initial charges, fund management fees, premium allocation fees, etc.
• Check out the past performance of the last 3-4 years of the ULIP plan chosen.
• Confirm that the solvency ratio of the insurance company chosen should be not less than 1.5, as it indicates financial stability.
• To make informed investment decisions, evaluate the long-term performance of the ULIP plans.
• Consider that ULIP plans that provide strategic investment horizons well aligned with the financial goals.

Steps to Buy ULIPs Online

Provided below are the steps to purchase ULIPs online:

Step 1: Launch the different insurance websites online to make a comparison.

Step 2: Choose a ULIP according to the financial goals, investments done, & risk tolerance level.

Step 3: You can also use the ULIP calculator available on the insurance provider’s website to calculate the premium amount depending on the amount of sum assured.

Step 4: Fill out the complete online application form with your personal details, contact details, along with the details of the nominee.

Step 5: Next, depending upon the risk tolerance level, select the type of funds you want to invest your money into. 

Step 6: Upload the documents required to be submitted, like address proof, identity proof, & age proof. 

Step 7: Pay the premium amount online with the help of available payment modes.

Step 8: In case required, complete the verification process online, including the video KYC process.

Step 9: Once the verification & approval are completed, the insurance provider will provide you with the policy document & mail it to the registered e-mail ID.

Documents Required

Provided is the list of documents required to buy ULIP:

Identity Proof

• PAN Card
• Aadhaar Card
• Voter ID
• Passport
• Driving License

Address Proof

• Passport
• Aadhaar Card
• Utility Bills such as electricity, water, & gas not beyond 3 months
• Bank Statement having a valid address not beyond 3 months
• Voter ID Card
• Ration Card
• Driving License

Age Proof

• School or College Leaving Certificate
• Passport
• Voter ID Card
• Birth Certificate
• PAN Card
• Aadhaar Card
• Driving License

Income Proof (In case of Higher Sum Assured Plans)

• Salary Slips for the previous 3 to 6 months
• Income Tax Returns for the previous 2-3 years
• Bank Statements for the previous 6 
• Form 16 in the case of salaried individuals

Photographs

• Latest passport-sized photographs, as mentioned by the insurer company

Bank Account Proof

• A Canceled cheque with the name printed on it
• Bank statement or passbook showing the account holder’s name, account number, & bank details

Things that should be avoided while investing in a ULIP

After understanding What is ULIP, let us know the things that should not be considered while investing in a ULIP:

Risk Tolerance

As the ULIPs are market-linked plans, where the returns keep fluctuating, hence one should choose a plan that aligns well with the risk tolerance level.

• Short Term Goals

Ideally, ULIPs should be considered for the long term as the market volatility & lock-in period can make them unsuitable for short-term financial goals.

• Focusing on Tax Benefits

Though ULIPs offer tax advantages, one should focus on investments as well.

• Self-Switching

Though flexibility can be availed through self-switching, excess of it can reduce the long-term benefits to be achieved. Hence, build a well-defined investment plan & avoid making impulsive decisions depending on market-related changes.

• Investment Horizon

Also, consider your ULIP for a long tenure to rule out market-related fluctuations & target your financial objectives.

What are the associated ULIP Charges?

There are some charges associated with ULIP, such as funds management, mortality, premium allocation, & surrender charges. Let us discuss them in detail:

• Premium allocation charge:

The insurance provider company charges this type of fee for allocating the principal amount towards different investments.

• Fund management charge:

The fund manager charges this type of fee to manage the ULIP portfolio.

• Mortality charge: 

An insurance company charges this fee to provide life insurance coverage.

• Policy administration charge:

An insurance company charges this type of fee to maintain the records related to ULIP.

• Switching charge:

This fee is charged for switching between the different funds.

• Partial withdrawal charge:

This type of fee is charged upon partial withdrawal.

• Surrender Charges:

If you terminate the ULIP within 4 years, surrender charges are charged, which range between INR 1000 to 4000.

Conclusion

If we compare ULIPs to traditional plans, they offer high returns due to them being market-linked. ULIPs are considered to be safe investment plans in the long run & can switch between funds. They not only help create wealth but also grow money & protect the family members to deal with future uncertainties.