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Stay Away from 5 Common Mistakes When Buying ULIP

Selecting the right financial instruments to plan your future is a crucial life decision. If you want to have appropriate financial security without compromising your budgets or depleting your personal savings to pay for things like further education, asset acquisitions, travel, and marriage, you should begin as early as possible in life.

KJ Contributor
Money
Insurance (Pic Credit - Shutterstock)

Selecting the right financial instruments to plan your future is a crucial life decision. If you want to have appropriate financial security without compromising your budgets or depleting your personal savings to pay for things like further education, asset acquisitions, travel, and marriage, you should begin as early as possible in life. A strong investment plan is the best answer and financial cushion that investor can have, plus it can be tailored to specific circumstances.

Because there are so many plans to pick from in the insurance market, and because there are so many extra features that may be added, the process of selecting one plan can be daunting. As a result, investment providers launched ULIP plans to combine the benefits and features of insurance and investment in one plan.

A Unit Linked Insurance Plan (ULIP) is a product that combines the benefits of insurance and investment into one financial product, serving a dual purpose for the policyholder. As the policyholder, you have to pay premiums for the ULIP to keep it active throughout the policy term. The distinguishing feature of a ULIP is that it distributes a portion of the invested money into unit-linked market instruments and the remainder is dedicated to life insurance coverage. Since these plans are linked to market instruments, they are associated with varying amounts of risk. An investor, on the other hand, can choose from a variety of investment options based on their investment portfolio needs and risk appetite.

Since a ulip plan is a market-linked option with distinct features, an investor may have trouble navigating through the various features and requisites the plan may have. The best ulip plan in India is one what will be accessible to investors with moderate risk appetites with the benefit of insurance coverage. Therefore, it is crucial to choose accordingly. Let us discuss the common mistakes to stay away from while buying a ULIP plan:

1. Not Gauging Risk Tolerance: Because a ULIP plan is a market-linked investment, it is vulnerable to market volatility, which affects the NAV. Despite the fact that debt and equity mutual funds are relatively risky, market movements may have an impact on their expected returns. Hence, as an investor, it is best to understand your risk tolerance appropriately before parking your money in market-linked instruments.

2. Not Comparing Plans: Investing in a ULIP plan, like any other investment plan, should be done after you have done adequate market research. Since there is an abundance of ULIP plans available in the market today, it is important to compare the benefits so you can make an informed choice. Since ULIP plans provide market-linked capital growth solutions such as investing in debt and equity mutual funds, an investor should keep track of the fund and evaluate its prior market performance before committing.

3. Not Taking Plan Costs into Account: Additional expenses associated with ULIP plans may not be obvious at the time of purchase; consequently, while evaluating ULIP plans, expenditures such as premium allocation fees, initial charges, surrender charges administration fees, and service charges should be considered.

Insurance
Savings (Pic Credit - Shutterstock)

In addition, many ULIP plans contain lock-in periods or entry and exit fees that an investor may be charged. As a result, if an investor has a short investment horizon, they should look for these costs inside the plan.

4. Not Considering Investment Goals: There is no single best ULIP plan in India that will be suitable for all financial profiles. It comes with investment opportunities of varying risk degrees. As a result, you can assess your investment goals and risk appetite to find the most suitable funds when you are investing in a ULIP plan.

These plans have the potential to give large returns on your investment. Hence, a ULIP plan can be an ideal solution for investors who have large expenses or monetary commitments in the future. For instance, you can plan in the early stages of life for future expenses such as buying a house, a car, saving up for a child’s education, etc. 

5. Conflating Insurance with Investment: Before investing, an investor should duly understand the features and guidelines of the ULIP plan. Insurance coverage under a ulip plan should not be the primary reason for investing. It is usually a supplementary feature of the plan that may not be sufficient as the sole life insurance or coverage solution for an investor. In general, the best ULIP plan in India is a long-term insurance plan, which is advantageous to potential policyholders looking for suitable coverage for their dependents.

Starting financial planning as early as possible is always a vital step towards a secure and comfortable future. Therefore, efficient investment plans and insurance solutions can cover a family at times of great need. The range of ULIP plans available today are built towards further simplifying and streamlining your investment and insurance needs, in one space. Reach out to a financial advisor today and find a plan that grows with you and for you, on your terms.

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