Everyone has different priorities and financial goals to achieve. To fulfill them without any financial difficulty, people find different solutions like saving money, investing in different investment vehicles, etc. Often people get confused choosing a suitable insurance policy for themselves.
Usually, people prefer to choose an investment option with lower risk, maximum benefits and wider coverage. A life insurance product with all of these characteristics is a ULIP policy. It provides life coverage and investment benefits from market-linked assets.
If you take out a ULIP policy in India, you will be entitled to a number of benefits. Find some of them below:
Due to these benefits, the number of people buying a ULIP policy has increased. But, in the process, some of them might make mistakes, which could cost you dearly.
Common mistakes to avoid when buying ULIP
Find common mistakes you should avoid when buying a ULIP font below.
Sometimes people think of a ULIP policy as an alternative to a life insurance product. A ULIP policy, on the other hand, is different from a common life insurance policy. It covers a number of investment benefits as well as life insurance coverage.
It is also one of the best monthly income schemes. If you stop paying the premium for any reason, you will not be eligible for the insurance benefit.
It is relatively advantageous to buy an insurance plan with regular premium payments rather than a single premium payment plan. Depending on your cash flow, you can decide how often you want to pay your premium, such as monthly, quarterly, semi-annually, etc. By opting for this, you spread your tax benefits and you benefit from the spreading of the cost in rupees.
Each individual has different goals and objectives. Before investing in any life insurance product, it is important to assess your long and short term goals and calculate your current assets and liabilities.
After analyzing and evaluating everything, you will be able to get a fair idea of the funds needed to achieve your goals and combat any uncertainties that may arise in the future.
Not staying invested for the long term is one of the most common mistakes people make. If you stop paying premium during the term of the policy, you will not be eligible for life coverage.
Also, if you fail to pay the premium amount in the first five years, i.e. the lock-in period, you will not be able to withdraw your amount. In this case, you will only receive the net asset value after 5 years after deducting certain charges.
It is essential to consider the risk factor of a ULIP policy. As ULIPs are market-linked securities, this means that you are eligible for higher returns, while being exposed to higher risk. However, it is advisable to allocate your funds wisely based on your risk appetite and current financial capacity.
Initially, you can choose either equity or debt depending on your preference. Later, you can swap your funds between securities depending on the state of the market. However, a fixed number of switches is allowed per year. This number may vary from one insurer to another.
There are several fees associated with a ULIP policy, such as policy administration fees, premium allocation fees, fund management and administration fees, etc. After news of the guidelines issued by the Insurance Regulatory and Development Authority of India, insurers have now reduced these charges and capped them at 3%.
However, these fees vary between different insurers. Therefore, before making your final decision, it is essential to check these fees and choose one with lower fees while considering other benefits and inclusions.
It is relatively advantageous to buy an insurance plan with regular premium payments rather than a single premium payment plan. Depending on your cash flow, you can decide how often you want to pay your premium, such as monthly, quarterly, semi-annually, etc. By opting for this, you spread your tax benefits and you benefit from the spreading of the cost in rupees.
It is important to keep in mind that a ULIP policy has a lock-up period of 5 years and it is not a 5-year investment plan. If there is no emergency, it is advisable to continue your ULIP policy for several years.
The withdrawal facility provided after the lock period is for your convenience and liquidity so that you can withdraw the amount in case of emergency. Having your amount invested for a longer period of time will provide you with more benefits.
Apart from the mistakes mentioned above, one of the most critical mistakes you could make is choosing an inappropriate insurance provider.
Hence, it is advisable to check the profile of the insurance provider and read all the specifications, terms and conditions, claims settlement report, associated charges, etc., to avoid any further issues. If you have any difficulties during the process, you can contact the customer service managers.
