Sep 16, 2014,11.20 IST
Planning to buy ULIP? Find answers to these first
Those looking to reap the benefits of insurance as well as investment, should buy ULIPs or unit-linked insurance plans. The money paid up as a premium for the ULIPs is segmented in two distinct buckets; life insurance risk premium (for self & family) and investment in funds and other schemes. Given the two-pronged approach that ULIPs adopt, they are no doubt much desirable; however, it is always advisable to ask the right questions before buying any policy. It will give you a clear idea of what you are getting into and what you should expect.
What is the life cover offered?
Remember, ULIP is a product that serves as an insurance policy and an investment avenue. Don’t be blinded only by the investment part of the policy. So make sure that when you plan to buy ULIP, you always ask the agent or advisor about the life cover offered it offers. While some plans offer a specified life cover, others may offer it in a range. Once you have learnt about the life cover, you can align it with your financial objectives, and if they match, you can buy the policy. Doing so will ensure that you buy the right ULIP, one that is in line with your goals.
What all charges you need to pay?
While buying a ULIP, ask upfront about the charges that will come along with servicing the policy. Some of the charges you may have to pay are fund management charge, mortality charge, policy administration charge, switching charge and surrender charge. This way, you will be clear of how much money you will be paying to service the policy. You must also enquire if the charges are one-time or recurring to get a clearer picture.
What investment options are available?
ULIPs invest in equity, debt and hybrid funds. You have the option of choosing as to where your money gets invested. It could be one particular type of fund or a combination of funds. Your choice should be based on your requirements, your ability to take risks and your expectations. It is important that you understand the mandate of each fund and choose accordingly.
What flexibility options are available?
Another crucial factor you should keep in mind while buying ULIP is to check the flexibilities it offers.
-- Should there be any emergency and you need money, is there an option to make partial withdrawals from the policy?
-- Incase you surrender the policy in between the term, what will be the surrender value and when/ how will it be paid?
-- Can you switch between funds if you feel a particular fund is not performing well? Does this attract any charges?
-- Do you have the option of making an additional investment in the form of top up? If so, are there any charges?
These are some of the questions you must find replies to so you have a clear idea of the policy you are buying.
Only once you have clarity on all the above issues, can you make an informed decision and buy the right policy.
Principal Financial Planner
Optima Money Managers