It is so important in these tumultuous health and economic times to plan your finances effectively. Not only do you need to have protection for medical emergencies, but you also need access to better investment options and additional income that doesn’t require too much hustle.
The Covid pandemic was a wake-up call that reminded the entire world that nothing in life is permanent, not even life itself. Therefore, you need to secure the future of your loved ones in your absence. That’s the benefit your beneficiaries get from your life insurance policy. But life isn’t just about planning for death. Wouldn’t it be much nicer to enjoy the benefits of wealth during the course of your life? Even better when you can do them both together.
That is the essential idea behind ULIPs and the meaning of ULIP.
What are ULIPs?
ULIPs are Unit-linked Insurance Plans. The Ulip meaning is that you can purchase a life insurance policy and add an extra layer of investment planning to make your money work for you.
Let’s understand ULIP’s meaning with an example.
Suppose you want to protect the future of your parents, husband/wife, and children after your unfortunate and untimely demise. You take into consideration their lifestyle and needs and opt for a certain amount of sum assured for your life insurance policy.
Let’s assume that you take a ULIP life insurance plan for 15 years with INR 1 crore sum assured. In case of your untimely demise within this period of time, your family will receive INR 1 crore as a death benefit. However, if you survive the tenure of your policy, you will receive the maturity benefit of the premiums you paid. But that’s not all.
Instead of waiting 15 years to earn your maturity benefit, with ULIPs you can also invest in the current market and earn money. There are several types of market instruments that your insurance provider will shortlist for you based on your risk appetite. You can opt to choose singular instruments for investments or diversify your portfolio. Your insurance provider manages the investments and pays you earnings at regular intervals.
Simply put, ULIP means to invest in life insurance and earn money from the premiums that you pay.
What kind of ULIP plans can help boost India’s wealth?
When you invest in ULIPs, you have certain choices to make based on the available options of market instruments. Here are the types of investments that you can choose:
- Equity –
If you want to earn large sums of money from your ULIP investments, the equity market is the way to go. These are suitable for those with a higher risk appetite as the volatility of the market will affect your earning potential. However, when the equity market shoots up, you will make more than you originally expected. - Debt –
Deft funds are more suited for those with a lower risk appetite. Your money is invested in government bonds, securities, corporate bonds, etc. These are safer, less volatile markets but they also offer much lower returns on investment. - Liquid Funds –
If you want the security of knowing that your money is always accessible, you can try liquid funds. Your investments are put into money markets that offer liquid investments, i.e. options for faster withdrawal. The returns on your investments will be much lower than equity and debt funds since the growth in money markets is slow and steady. - Mixed or Hybrid plan –
If you want to invest safely but still incur a little risk, you can mix and match your investment options. You are free to invest part of your money into debt or liquid funds where the growth is slow but steady and doesn’t incur much risk. Then, you can set aside a part of your investment in equity funds where, if the market booms, you make a large profit.
The economic volatility of the Indian market can work in your favour with a little financial planning. Choose the Sum assured and tenure for your policy, and use a ULIP calculator to determine exactly how much premium you need to invest to reach your financial goals from market investments. Account for tax exemptions and non-exemptions when choosing your investment options.
How to choose the right ULIP plan?
One ULIP does not fit all. You need to customise the plan based on your financial goals and the needs of your loved ones. While in the event of an unfortunate demise, your beneficiaries will receive the sum assured as promised, your premium will also differ based on the investments that you want to make with ULIPs.
To choose the right plans for you, consider the intervals in which you will earn your returns on investment. You can come to an agreeable solution with your ULIPs insurance provider to receive these amounts as regular payouts or in lumpsum at larger intervals.
It is best to start investing once you determine your risk appetite. If you need the money in urgent situations, it is not ideal to put that sum aside in equity where the market is volatile. Debts would be much safer than equity and more rewarding than Liquid Funds.
If you are taking high risks, then it is best to wait it out and keep an eye on the market. Invest in ULIPs by diversifying your portfolio. That way, you don’t end up putting all your eggs in a risk-free, low-return instrument or a market-linked high-risk instrument. If the high-risk market is bearing down, then you need to hold still and wait for it to Bull out. In the meantime, your safer non-equity funds will keep growing steadily and offer at least some regular profits.
However, if you have excess money that you don’t currently need but simply keep spending because you have it, then you can bump up your premium and invest it in ULIPs with high-risk plans. They take a while to truly show their extravaganza, and since you don’t have any emergency need for the money, you can wait it out. Plus, it will help immensely when your maturity benefit pays out.
Conclusion
ULIP meaning can be a bit hard to digest as it comes with benefits on multiple fronts and you have multiple choices to make with your investments. The only way to boost your wealth in India is to diversify your portfolio, keeping the tax benefits in mind and choose ULIPs that benefit you and your family specifically.
