ULIP is a mix of insurance and investment. It is an ideal choice if you wish to create wealth without risking too much on market volatility. COVID has brought life insurance penetration in India from 2.62% in 2014 to 3.2% in 2020. ULIPs are also making a strong comeback in FY22. Better savings of the white-collared youths and strong equity markets along with high-risk appetite meant a steady growth in individual regular new business (49% y-o-y to ₹130 million) and in individual single premium new business (85% y-o-y to ₹43.3 billion).
The core idea of a ULIP plan is to help you invest a part of your premium in capital markets while the rest in life protection covers. You can pick funds based on your financial goals and build a corpus to achieve goals and protect your loved ones. The fund value of the ULIP and the loyalty additions will be received upon surviving the policy tenure. How to maximise these returns and make the most of your money? Here’s a look.
1. Right Asset Allocation
The best feature of the ULIP scheme is that it offers free asset class switches. So, you can choose to adjust debt and equity as per your financial goals. It is one of the simplest ways to optimise allocation since you can have more of one particular asset than the other. It helps create a diversified portfolio and saves you from losses. You can balance the rewards with risks and be able to keep your returns stable even when markets are underperforming. This reduces the impact on your overall investment and helps you determine the return to risk ratio.
2. Timely Premium Payments
A ULIP plan comes with a 5-year lock-in period. You can neither avoid premiums nor give up on the policy during this time. If you default on the payments, the investment is generally transferred to a discontinuance fund. The lump-sum insurance plan will lapse and you will be left with no coverage. A discontinuance charge, mandated by the IRDAI will be applicable which makes the situation all the more stressful. In short, if you wish to earn good returns, make sure to clear the premiums without delays.
3. Time the Market
It is crucial to remain aware of market noise since ULIP is not a pure savings instrument. It requires frequent monitoring to keep a track of the fund performances. You may have the option to leave falling funds and pick the more profitable ones. This will help prevent losses and boost your returns to a great extent. Investors can easily tide over market volatility and enjoy the benefits of long-term growth. The conventional strategy says one must buy when markets dip and sell during an upswing. It is necessary to make the right choice, like moving from a debt-oriented plan to an equity dominant plan, to stay invested safely.
Consider a disciplined approach when dealing with a ULIP policy. Select funds carefully by checking historical returns. All of these tips combined will help offer adequate protection to your family and grow your savings too.
