How ULIP is a smart investment choice

The purpose of purchasing life insurance is to ensure that your loved ones have a financial backup in your absence. It acts as an income replacement. The amount of coverage you choose is quite important, as the coverage should be enough to fulfil the needs of your dependents, along with repaying any outstanding liabilities. A huge coverage does come with a price as high premiums. This may lead to you having little to no room for any investments or savings. Having life insurance is essential, but so is having investments that enable you to meet your financial goals. This is the reason ULIPs are becoming popular these days. 

The meaning of Unit Linked Insurance Plan (ULIP) is an instrument that offers you both life insurance and investment in a single plan. Similar to any other life insurance, you are required to pay premiums in ULIP. However, the money that you pay for this plan is partly invested in funds of your choice and partly used to provide you with a life cover. It offers security to your family in your absence along with creating wealth alongside.

The life insurance aspect of ULIP works in the same way as any other insurance does. During the duration of your policy, if you lose your life, the nominee will receive a death benefit. It can be the sum assured of your ULIP or its fund value, whichever is higher. With the investment aspect, ULIP has been created in such a manner that it can achieve the goal of every investor with ease. Here are some reasons ULIP is a smart investment choice for every investor:

Meets the needs of every investor

In comparison with traditional investments, ULIP easily offers high returns. The estimated returns you can earn from your ULIP plan depend on the funds you choose. There are several types of funds to choose from. Based on your ability to take risks, they can be divided into three sectors: equity, debt, and balanced funds. Equity funds being invested in equity markets have high risks. The risk is usually rewarded with high returns. Investors who want a low-risk profile invest in debt funds. They have lower returns than equity, but the risk involved is also significantly lower. Investors who are interested in equity funds but want to mitigate some risk choose balanced funds. Balanced funds have both equity and debt funds to balance out the risk and reward of the investment. You can invest in any of these fund options based on your financial goals. You can also use a ULIP calculator to choose premiums according to the returns you are expecting after maturity of your plan.

Switch investments for free

Usually, once you have invested in a financial product, you either have to hold on to it till maturity or pay charges to exit beforehand. The allocation of your fund for investments remains the same throughout its duration, even if you are unhappy with the returns or the risk. However, if you buy a ULIP plan, you can switch between debt funds and equity funds anytime you want. You can change your fund allocation based on how your risk appetite changes in different stages of life. The ability to switch between different funds is rare and comes in quite handy during market fluctuations. Usually, individuals keep their ULIP plans for the long haul, tracking the market and changing their allocation accordingly allows investors to earn more. 

Multiply returns with compounding 

ULIP is designed for the long haul. Individuals who keep their ULIP for years can witness its potential for providing high returns. With ULIPs, the recurring premiums you pay are partially invested in funds of your choice. This means that over the years, you have collected earned returns not only on the amount of premium that is invested but also on the interest earned on the premiums of earlier years. This is known as compounding. In compounding, an investor over the years makes money not only on the principal amount that he invests but also on the returns earned in previous years. You can calculate the compounding benefits you can get with a ULIP calculator online. 

ULIPs are the perfect product for investors who want to earn over the long haul. They also help keep the investor’s loved ones secure with the life insurance aspect. From an investment standpoint, their flexibility can prove to be fruitful to every investor.