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Unit-Linked Insurance Plan (ULIP) is one of the most popular types of insurance plans available in the market today because it offers dual advantages.
It provides a combination of life insurance and investment, which no other insurance plan offers. It is secure to put your money in a ULIP investment plan with a long-term horizon of 10-15 years.
Until the intervention of the Insurance Regulatory and Development Authority of India (IRDAI) in September 2010, ULIPs were considered as a wrong investment choice. This was primarily due to the high front-loading costs and other fees that were approximately 7 to 8 percent. Also, intermediaries used to mis-sell ULIPs, making them an infamous investment choice.
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Since September 2010, the IRDAI has brought many modifications to make this policy a better investment option. The regulator has changed the way the insurers paid the insurance agents or intermediaries a commission. It has also capped the front-loading charges to 2.25% for the first ten years of the policy.
How Does A ULIP Work?
The two main aspects of a ULIP policy are securing the life of a policyholder and investment.
ULIPs let you choose the funds where you want to invest. Therefore, it is vital to invest in the right type of funds to determine the returns on investment.
Why Is ULIP A Secure Investment Alternative In The Long Run?
A ULIP investment plan is a safe financial product because:
#1. ULIP has Gained the Trust of Investors
Many people are considering shifting from traditional insurance plans to ULIPs because of the dual benefits of insurance and investment in a single plan. This switch indicates that investors have faith in ULIPs. Besides this, first-time investors are purchasing a ULIP over traditional insurance plans.
The flexibility of moving the investment from one fund to another based on the market’s performance has allowed investors to avert the risks arising due to the market uncertainties. This one-of-a-kind feature has reduced the risks associated with ULIPs drastically.
#2. A ULIP Offers Better Returns
No other insurance policies available in the market provide the feature of investing in equity. Therefore, investing in equity allows investors to reap the benefits of higher returns in the long run. A part of the premium is allocated in different asset classes based on their performance.
Also, transferring the money from one fund to another enables investors to maximize the returns on their investment.
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#3. ULIP has a Mandatory Lock-in Period
ULIP plans have a compulsory lock-in tenure of five years. You can earn better returns if you remain invested with a long-term horizon, as the market will offer numerous opportunities where you can make the most of your investment.
Besides this, the power of compounding will build your wealth over a long duration. The lock-in term lets you structure your investment based on the risk-bearing capacity. Investment in a combination of equity and debt funds make ULIP a stable option.
Additionally, the IRDAI has reduced the premium allocation charges, administration charges, and fund management charges, among other costs. This has made ULIP an investor-friendly avenue.
The tax benefits, the possibility of choosing the kind of fund, transparency, and convenience of switching funds make ULIP one of the best investment instruments available in the market today.
Bottom Line
Now when you know what is ULIP, how it works, and what are its plus points, it is time that you search for the ideal plan that can help you meet your long-term financial aspirations.
Invest in a ULIP policy with a long-term perspective by keeping your risk-taking appetite in mind.
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