How to Select the Best ULIP for Your Portfolio?


5 min read

A dual-benefit insurance product, ULIPs are highly preferred among most people in India for their life insurance cover benefits as well as investment returns. But how to choose the best ULIP  for your investor portfolio? Read the blog to find out.

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What is Unit Linked Insurance Plans (ULIP)?

One of the best insurance product options available in the market, Unit Linked Insurance Plans, or ULIPs for short, are a policyholder’s safest bet in times of need. For, they not only provide risk coverage to the insured for life but also offer them an ideal investment plan. The policyholder is given the choice to make investments under the ULIP plan in a variety of qualified funds, such as stocks, mutual funds, and bonds.

However, as is well-known, investments in the capital market are always subject to risks. Hence, it only makes sense to make a well-informed choice before choosing a ULIP for investment purposes. Here we help you decide the right ULIP plan to add to your investor portfolio.

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Why to Choose a ULIP Plan?

A ULIP essentially serves the same purpose as an insurance plan where the policyholder pays regular premiums to the insurer throughout the term of the policy in return for assured financial protection. The only difference in this case is that only a part of that premium amount is invested in the insurance component of the ULIP plan. The remaining portion of the premium gets invested in the capital market with the aim of seeking profitable returns for the insured.

In a way, the ULIP insurance holds several benefits for the policyholder, allowing them the flexibility to choose the amount of coverage required for financially protecting their loved ones (family) in case of the unfortunate demise of the insured during the term of the plan.

With regard to the ULIP investment option, again the policyholder stands at an advantage, enjoying the additional benefit of earning profitable returns from investments made in the market.

How to Choose the Right ULIP Policy for Your Portfolio?

There are a couple of factors that can be taken into consideration when deciding the most appropriate ULIP plan to invest in, both for insurance and investment purposes. Let’s take a look at some of them:

  1. Understand your financial requirement: This is the very first thing to consider when choosing a ULIP policy for you or your loved ones. The plan should ideally be able to provide sufficient financial coverage to your family in your absence. It is therefore important to assess the exact financial requirements of your entire family, including your spouse, kids, or dependent parents, who would need to be financially protected in the event of your death.
  2. Plan for your retirement too: A good ULIP plan is one that helps take care of you not just in your hay days but also when you do not have a regular income to enjoy. Hence, choose a plan that would help you take care of your finances post retirement. You can keep making regular premium payments every month in order to enjoy benefit payouts even after the end of the plan term.
  3. Assess your ability to take risks: It is a general thumb rule that you can take more risks in life with regard to making investments when you’re younger. As you age and the number of dependents on you increases (spouse and kids), your risk-taking ability also reduces. When you’re willing to take high risks, you can go for equity funds that help meet your financial goals satisfactorily.
  4. Choose a flexible plan: Since ULIP plans depend on market favorability, it is only wise to switch to another fund option in case of any upheaval in the market. Therefore, choose a plan that allows you to make a switch from one fund type to another with changing market situations.
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ULIP vs Mutual Fund – Which is Better?

These two funds are often confused with one another, mistakenly taken as investment options. However, the fact is that ULIPs are essentially insurance plans offering an additional benefit to the policyholder of using it as an investment plan and earning market returns.

On the contrary, mutual funds are purely an investment option wherein the investor stands the chance to generate wealth for the long term.

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What are the Tax Benefit of ULIP?

ULIP plans also offer tax benefits to the investors. Upon maturity of the plan, the amount received at the end is eligible for tax exemption under section 10(10D) of the Income Tax Act, 1961. ULIP taxation exemptions also make it favorable among investors looking for options to invest in the capital market.

However, that said, it is important to note here that ULIPs, just like any other investment plan, attract payment of certain charges for maintenance of the fund. A certain fee is levied upon the plan in return for management of your financial assets. At the time of buying a ULIP plan, it is important to read the policy documents carefully in order to assess the exact charges payable for the plan, or ask your insurer directly.

Read More: Top Benefits Of Investing In Unit-Linked Insurance Plans (ULIP)

To Conclude

ULIP plans differ from other investment plan options such that they help you create wealth as per favorable market conditions. In addition, the flexibility to switch from one plan to another in the event of changing market conditions is what makes ULIP plans favorable to investors.

This added to their life insurance feature makes ULIPs ideal to buy both as an insurance product and an investment plan. However, make sure to assess all the risk factors and your future financial requirements before choosing the best ULIP plans for yourself and your loved ones.

Make an informed choice after taking into account all the points detailed in this blog and in case of any doubt, be sure to get in touch with your insurance company.

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FAQs on How to Select the Best ULIP for Your Portfolio?

What are the charges in a ULIP, and how do they affect my returns?

Premium allocation charges, mortality charges, fund management charges, policy administration charges, and surrender charges are all included in ULIPs. These costs might lower your returns and the ULIP's overall performance. As a result, it is critical to examine the costs of several ULIPs before deciding which one is best for your portfolio.

How do I choose the right ULIP plan for my investment portfolio?

Consider your investment goals, risk appetite, and investment horizon before selecting a ULIP plan. Analyze the fund performance and track record of different ULIPs across various market cycles. Choose a ULIP that aligns with your investment objectives and offers a well-diversified portfolio.

What is the lock-in period of a ULIP, and how does it affect my investment?

ULIPs have a lock-in period of five years, which means you cannot withdraw the funds before the end of the lock-in period. If you withdraw the funds before the lock-in period, you may have to pay surrender charges, which can significantly reduce your returns. Therefore, select a ULIP plan only if you can stay invested for the entire lock-in period.

What are the tax implications of investing in a ULIP?

ULIPs offer tax benefits under Section 80C of the Income Tax Act. You can claim a deduction of up to Rs. 1.5 lakh on the premium paid towards ULIPs. Additionally, the maturity proceeds of the ULIP are tax-free under Section 10(10D) of the Income Tax Act.

How do I monitor the performance of my ULIP investment?

ULIPs offer the flexibility to switch between funds based on your investment objectives and market conditions. You can monitor the performance of your ULIP investment by tracking the fund's NAV (Net Asset Value) and comparing it with the benchmark index. Additionally, review your investment portfolio regularly and make changes if required to align with your investment objectives.

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Sep 06, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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