Financial PlanULIP

3 Ideas That Enhance Your ULIP Investment

Unit-Linked Insurance Plan (ULIP) is gaining popularity across the country. It is an investment product, which offers life insurance as well. Those who want to build a strong investment corpus for the long-term goals can choose to invest in the best ULIP plan. ULIP helps in wealth generation and offers a life cover. Investors might suffer in case of a market downfall and this happened in 2008. When the investors tried to surrender their policy, they realized that the surrender charges were too high and it led to huge losses. In addition, there were premium allocation charges, which were equally high and were deducted from the premium. Because of this, the investments went down and ULIP was not considered t as a valuable financial product. Nevertheless, the regulations in 2010 led to many positive changes.

In 2010, the charges on ULIP came down and the lock-in period was increased. The surrender charges were 90% of the fund value prior to 2010. After the regulations, such high charges were eliminated. This means there were no surrender charges after the lock-in period of five years. The total charges on ULIP investment actually came down to about 4% only and this was later reduced to almost zero if you purchase the policy online.

Three ideas that will help increase your returns

If you wish to generate higher returns on your ULIP investment, you must follow these three ideas.

Purchase online

Technological advancements have made it possible for you to buy anything online. All insurance companies offer their products online and you can make comparisons between them with ease and convenience. It is advisable to purchase your ULIP online for a number of reasons. If you buy them online, you will have no charges on the same. Another benefit is the ease of comparison. When you make an online purchase, you can compare the products with ease and choose the one that is best for you. You can understand the features of different plans and make a well-informed decision. The comparison is free and all you need to do is use the comparison tool for the same. It will allow you to compare the amount of premium for a specific sum assured on the policy. You can also compare the ULIP charges, which include fund management charges, premium allocation charges, and surrender charges to choose the right policy. Lastly, you can compare the returns of the policy and understand their past performance through the same tool. You will not have to visit the insurance company’s branch office or speak to an agent. You can manage your investment with ease and convenience and that too at no cost.

 Invest for a longer tenure

All ULIPs have a lock-in period of five years. It is essential for you to remain invested for a period of five years but you can exit from the ULIP at the end of the same. However, it is advisable that you do not exit from the fund. If you need funds for an emergency, you can choose partial withdrawals. However, experts recommend to not exit the plan completely. You should never stop paying the premium until the maturity of the plan. Even though the surrender charges are low, you could face a financial setback, and your returns could decline. The best returns from ULIP can be earned if you remain invested for the long term. Keep an investment horizon of ten years at a minimum and try your best to remain invested in the fund until this period ends. If you remain invested for more than ten years, you can enjoy loyalty additions to your fund as well. This will increase your maturity amount.

Invest in a high-value life cover

When you invest in a ULIP, you are investing in a product, which will accumulate the capital. Consider the ULIP NAV at the time of purchase. NAV is the ‘net asset value’ of the ULIP. It will have a huge impact on the number of units you purchase for the money you invested. You will also be able to enjoy a tax benefit on the amount of premium paid by you. The premium amount is exempted from tax up to an amount of INR 1.5 lakh under Section 80C. Hence, the higher the amount of premium you pay, the higher the tax benefits you receive. With a high premium amount, you also enjoy a high-value life cover. In the case of a ULIP, you are eligible for a life cover, which is ten times the premium amount invested. Hence, if you pay an annual premium of INR 20,000 per year, your life cover will be INR 2 lakh. It is advisable to opt for a high-value life cover even if it means a higher premium payment. If you are above the age of 50, it is best to avoid investing in a ULIP because there are very high charges for mortality and the same will eat up your returns.

Keep these three tips in mind when making the decision to invest in a ULIP. You need to consider your long-term financial goals and the purpose of purchase before you choose ULIPs over any other investment product. There are a number of plans available in the market, which you can opt for. Keep your investment tenure and risk appetite in mind to make a wise investment decision.

Vikas Agarwal
the authorVikas Agarwal
Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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