To be a smart investor, you should know how to manage your investments properly. You should have in-depth knowledge of whichever investment plan/s you are choosing. If you are looking to invest in market-linked instruments as well as buy life insurance coverage, then you can hit both targets with one stone by opting for a ULIP. As it merges two aspects – insurance and investment – into one, some may find it difficult to manage ULIPs effectively. What kinds of instruments should one buy, and would it be a good idea to opt for riders with a ULIP plan? To help you out with such questions and more, we provide you with some tips on how to manage your ULIP effectively.
What is a ULIP and how does it work?
Before we go ahead with the management pointers, let’s look at how ULIP plans work. The premiums of your Unit Linked Insurance Plan or ULIP are used for two purposes by the insurer. A certain chunk of the premium goes towards building and sustaining your life insurance corpus amount. If you pass away under unfortunate circumstances covered by the policy, then your family receives this sum assured amount. The insurance company uses the other portion of the premium to invest in market-linked or low-risk instruments.
The biggest benefit of investing in a ULIP policy is that you have the freedom to invest in the asset classes of your choice. Depending on your risk tolerance and profile, you can even transfer your funds from one asset class to another. We will learn more about the same further on. If you want an estimate of the results that your funds may bring, you can use a ULIP plan calculator.
Tips to manage your ULIPs effectively
- Have a long-term outlook
Like with any other investment plan, having a long-term outlook is important with ULIPs as well. The key is to keep investing a steady amount at regular intervals over a long period of time. The structure of ULIPs, in fact, encourages this. The lock-in period, which is valid for five years, does not allow the policyholder to withdraw any funds within the duration. This helps your funds grow without any external intervention. However, if you want to gain maximum returns from your ULIP plans, ensure to hold the plan for several years even after the lock-in period has ended.
- Keep an eye on markets and switch funds accordingly
Being aware of market trends is a wise move if you are making any sort of investment. And with a ULIP, it can prove to be even more beneficial since you can switch funds from equity to debt as per your understanding of the market. This feature is called fund switching. If you have invested a major portion of your money in equity funds but are concerned about losses due to market volatility, then you can transfer that money into debt funds. On the other hand, if you want to take advantage of market highs, then you can shift your funds from debt into equity.
Most insurance providers offer this facility without any charges for as many times a year as you want. Before you make any switches, plan thoroughly and use tools, such as the ULIP plan calculator, to come to a well-informed decision.
- Review your coverage from time to time
It is quite common for a policyholder to feel that the life insurance coverage they opted for initially would not prove to be sufficient. Therefore, with your ULIP plan as well, you must review the coverage from time to time. If you wish to, you can opt for a top-up premium to increase your sum assured amount.
Additionally, you should also consider if you want riders under your plan. Riders, such as waiver of premium add-on, accidental permanent disability/ death rider, critical illness rider, and so on, can prove to be very helpful in the relevant scenarios.
- Set up a partial withdrawal plan
If you want to enjoy the returns from ULIP plans you have invested in for a long while, then the best way to go ahead is via a partial withdrawal plan. Under this system, you receive a specific amount withdrawn from the ULIP funds at pre-decided intervals.
With the help of these tips and some guidance from a financial consultant, you will be able to make the most of your ULIP and enjoy its benefits immensely.