How to choose a best ULIP plan?

It gives the benefits of all the investment options as one instrument making it a very attractive option. Almost 50% of the insurance business is accounted by the Unit Linked Schemes. There are many ULIP programs offered by the various insurance houses in the country.

Almost all of these Unit Linked programs provide the option of choosing from the various portfolio regarding where the money of policy holders should go. Some these are:

• Growth or Equity Fund which provides high returns and high risks by investing in equity market.
• Cash Funds which has a low risk low return model and invests in cash and bank deposits.
• Bond Funds which have a medium risk and invests in various corporate bonds out there in the market.
• Balanced Funds which try to strike a balance between the equity, bonds and bank deposits to find an optimum balance between risk and returns.

Deciding a perfect ULIP-policy for someone also depends on that particular individual and his risk taking abilities, age and purpose.

Some suggestion for choosing the Unit Link insurance plan:

• Understand the ULIP Concept thoroughly

Try to read about the concept of Unit Linked Scheme. Do as much homework as you can to judge the pros and cons for this scheme.

• Focus on your Requirements and Risks involved

One ULIP policy can be good for one person but not a very effective option for someone else. One should keep in mind his risk taking ability and how much insurance coverage one wants. It depends on the family and financial structure of the particular individual.

• Understand the specifications of each scheme

Every ULIP-program has some offers specific to that particular insurer like top-up premiums, free switch facility, increase or decrease in insurance coverage and portfolio level, premium holidays etc.

• Track the previous performance of the fund

Previous return levels of the policy are not indicative of their future performance, but still it gives a vague about how the scheme is doing in the market.

• Keep note on various charges levied by the plan

One should understand and be aware of the various charges involved in these schemes. These are administrative charges, maintenance charge, switch charge, initial charge, commission charge, renewal charge. Some of these are fixed and others change with time.

• Company Information

One should not get carried away by the attractive charges offered and returns promised by a particular ULIP scheme. The legacy and background of the company offering the Unit Linked Plans should be checked. It is always safe to go with the trusted brands

• Comparison

After judging the performance, plans and flexibility offered and charges levied by various scheme, one should select among them the best scheme.  Sometimes, a company you have faith in doesn’t have a perfect plan for you. In these cases, one should try to strike a balance between brand, rates, possible returns and individual need.

General Guidelines for best  ULIP plan selection based on the age group and condition of individual:

1. 1.       Single Person starting a Job

At this stage, one wants low life protection and high asset creation. So accordingly one should choose a plan providing less insurance coverage and a growth fund.

1. Recently Married Couple

One should opt for some reasonable protection, but asset creation should be given more preference.

1. 3.       Married with kids

Once you have a responsibility of kids on your shoulders, your life has the utmost importance. But high asset should also be there to meet the future demands of children. In this case, one should go for high life coverage and high asset creation. One can use ‘Top-up’ feature to increase the asset creation.

1. Couples with responsibility of higher studies and marriage of children

One should look for the facility to stop premium (premium holidays) in the ULIP-scheme to meet the extra expenses of children and their marriage. One should also look for lower charges levied on partial or premature liquidation of units to meet these expenses. The keyword for them is “flexibility”.

1. Elderly couples with independent children

Try to decrease the portion of life insurance coverage as no one is dependent on you.

Please post a question if you want to know which ULIP-policy suits you the best.

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