Every investor wants their investment to perform well in the market so that they can enjoy high returns. Those who tend to achieve consistently higher returns on their funds often have a set of norms that they abide by when it comes to their money. The right kind of approach to your investment plan is also important. All these factors differ depending on the kind of product that you are opting for. When it comes to a ULIP policy, one must always remember some golden rules. These rules can help you maximise your ULIP gains in the best manner possible.
Before that, let’s understand how a ULIP policy works.
What is a ULIP policy?
A ULIP policy offers the best of both – life insurance and investment options – under one product. How does a ULIP insurer manage that? By dividing your premiums into two. One part of your premium is used to support the life insurance coverage that you have chosen. The other part is used to invest in the financial instruments of your choice. When you invest money in a ULIP policy, it is mixed together with the money from other investors. This accumulated money is then invested together into the market. The bigger the share of your money in the pooled money, the higher will be the number of units you are allocated.
As your funds go up or down in the market, your returns are also affected accordingly. There are various types of ULIP policies one can invest in, such as equity funds, debt funds, and hybrid funds.
How to maximise your ULIP gains?
Invest for the long term
Whether you are a beginner or an expert, the most important rule to keep in mind for your investments is to keep your money for the long haul. Investments are subject to the concept of compounding. So, the longer you keep your money, the more your principal amount gains interest. This interest, in turn, earns more interest.
ULIPs have a lock-in period of five years. One can make partial withdrawals from the policy only after the end of this lock-in period. This is a good feature for return-savvy investors as it ensures they keep investing for a long time without making any withdrawals.
Make your calculations beforehand
Before you sign your ULIP policy, make sure you have your calculations right. The internet offers various tools, such as the ULIP plan calculator and human life value calculator, to help you understand how each variable affects your overall premium amount.
The best part about these calculators is that you can modify the variables as much as you would like. Depending on the data entered, the calculator provides an estimate of the premium. You should experiment with the calculator, modifying each element to see the differences in the premium. Note that the ULIP plan calculator only offers an estimate. The actual premium may differ.
Check the figures of the insurer before investing
Some insurers in the market have been providing ULIPs for a long time. They have gathered experience in this field and their figures showcase the same. Therefore, ensure to choose a well-known, reputed insurer only. Check the fund performance of their different types of ULIP plans. Do the numbers imply a steady growth? Only go ahead if the answer is positive.
Also, check if they offer unlimited free fund switches. Other aspects, such as customer service, should also be looked at. These also have a positive effect on the returns you receive.
Create a strategic fund switching plan
Fund switching refers to the process of transferring your funds from one asset class to another. Now, there are various ULIP portfolio strategies that capitalise on this fund switching feature, such as the wheel of life strategy, automatic transfer option, trigger-based approach, and so on. These strategies transfer your funds from equity to debt and vice versa, wholly or partly, based on the approach taken by the strategy.
Each strategy is meant to maximise your fund’s growth depending on the condition of the market and your own needs. What this ultimately does is stabilise your funds and help your money tide over market volatility without you having to go over your budget.
While investment growth is important, do not forget to review the life insurance coverage of your ULIP policy now and then. It is also an important source of financial security for your loved ones’ future.