What are the questions to ask before investing in a ULIP Policy?
Buying a Unit-linked Insurance Plan is a long-term financial decision. The financial growth aspect aside, it will also serve as your life cover. This means that not only your personal financial goals but the future of your loved ones in the event of your untimely demise also relies on this plan.
ULIPs are one of the popular financial products today. There are a number of insurance providers with multiple plan choices. Consumers now have a wide range of options to choose from. With this variety in plans and the way they seem to cater to varying ne8eds, it is easier to make a choice.
However, most of these policies are based on the same core design and function in a similar manner. It is essential to understand all that you can about these plans before your purchase.
If you are in the market for a ULIP, start by shortlisting plans that seem to fulfil your expectations. Once you have narrowed it down, you can consult an insurer representative and get answers to some of the following questions:
- Is the plan right for my needs?
To begin answering this question, you will need to have spent some time understanding your financial planning needs, and expectations from a plan. Also necessary in this scenario is a basic understanding of these policies. Once you are through this process, you can go through the policy details or consult an expert to help you answer this question. For example, if you expect a certain amount as returns based on your input into the plan, you can start with estimates from a ULIP return calculator. Then, you can seek help to understand how well this may translate into reality.
- Are there any fees and expenses attached to the plan? If so, what are they?
While it may be news to novice buyers, consumers who are well-versed in financial products know that Unit-linked Insurance Plans come with a list of charges that have to be borne by the policyholder. Some of these charges are primary and applicable to all policyholders, whereas others may or may not apply to you, depending on the type of policy you have. Your ULIP’s performance in the first few years (5-10 years) may be affected by these charges. Consult an expert to understand the limitations on these charges and relevant guidelines issued by regulatory bodies.
- What additional benefits can I look forward to?
Although the ‘insurance plus investment’ aspect of ULIPs seems to be most popular, there is more for a policyholder to look forward to. One of these advantages is loyalty benefits. These are additions that one can earn if they maintain their policy through to maturity. Another advantage is partial withdrawals that some plans may offer. With this feature, you can draw from your policy in times of need. Before you buy a plan, it is best to get informed about these features.
- How flexible is the plan?
Unit-linked Insurance Plans, given their intricate nature, can be difficult to navigate. For the purpose of day-to-day fund management, you can rely on a fund manager. However, there are other features of the plan that you would have to take a call on. To do this effectively, it is important to understand how flexible the plan is. For example, how many free switches are available annually? Or what are the limits on partial withdrawals? Knowing these details may help you plan and manage well.
- How has the plan performed in the past?
Market performance is not guaranteed. It will alter and along with it, your ULIP performance will, too. However, it is not often that a plan will stray from the trends or growth it has previously shown. Furthermore, a quick study of the trends coupled with ULIP returns calculator estimates can give you a much better picture of what you can expect.
- How much life cover can be expected?
When getting a Unit-linked Insurance Policy, you expect to make the best of both benefits. Thus, it is essential to not deprioritise the insurance aspect. Ask this question before buying the plan to ensure that you have sufficient life cover to fulfil your family’s needs in the unfortunate event of your demise.
These are some of the questions that potential policyholders should have addressed before they make a purchase. It is essential that you indulge in due research when making such long-term financial commitments, so you can make the best of them.