Modern Investments Done Right: 3 Ways To Know If ULIP Is Right For You

A Unit Linked Insurance Plan (ULIP) allows investors to receive not just insurance but also investment in the same plan. These plans can be convenient, flexible, and easy to understand. ULIPs also provide tax benefits, and of course, potential return on investment. But before selecting a ULIP, there are some things you need to understand.

  1. Level of risk

ULIPs are versatile considering you can decide how much you'd like to risk. But not every risk level is going to be appealing for every prospective investor. While opting for a ULIP that has a higher risk means you may receive a potentially higher reward, this also means your investment may not go as planned.

There are three main types of ULIPs:

  • Equity-based: Riskiest but the highest reward if it goes right
  • Debt-based: Much less risky than equity-based ULIPs but have a smaller return on investment
  • Hybrid/Balanced: Most flexible ULIP as there is the power to choose where to invest; equity and debt funds offered

In fact, even the safest investments have some risk attached to it, according to Finra. That said, for those who don't like the idea of risk on any level, your best bet is to avoid investing altogether, thus, a ULIP.

Cost of a ULIP

What some don't realize is that a ULIP can have several different charges including, but not excluded to, allocating charges, a policy administration fee, a fund management fee, and so on. Traditional life insurance plans don't have these.

For those who would rather pay annual premiums for life insurance without the many charges of a ULIP, term insurance may be more relevant, straight-forward, and easier for you to understand how much you will be paying year-after-year.

Additionally, if you don't want to be locked in with a ULIP for a period of five years, a term insurance plan will be more convenient because your policy will end after the year is over if you do not pay the next annual premium.

Return on investment

Coming back to what was discussed in the first section, there are different types of ULIPs: equity-based, debt-based, or hybrid-balanced ULIPs. Not only are there different risks but different levels of returns on investment. The riskier the ULIP, the potentially greater return on investment you may be able to receive.

Of course, if you opt for a traditional life insurance plan, you're not going to get getting the benefit of a return on your investment – because there isn't any investment taking place. That said, if you wish to gain equity through investment via a ULIP, you're going to need to accept that there's a risk attached to any potential gains.

Again, if one isn't up for risk, then they should be involved in any level of investment and would be better benefitted from a non-linked life insurance plan without investment attached.

Conclusion

Some of the most crucial aspects of ensuring a ULIP is right for you, besides knowing what you're getting into, is understanding its level of risk, how much it costs, and the return on investment you may be able to receive. Take the time to conduct proper research to educate yourself on a ULIP and what it consists of.

About AEGON Life

AEGON Life Insurance Company Limited launched its pan-India operations in July 2008 with a vision to be the most recommended new age life insurance Company. AEGON is one of the world's leading financial services organizations (providing life insurance, pension plans, and asset management) and Bennett, Coleman & Company (India's leading media conglomerate) have come together to launch AEGON Life Insurance. This joint venture adopts a local approach with the power of global expertise to facilitate a direct to customer approach, leveraging digital platforms to bring transparent solutions to customers and to prioritize their needs.

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