5 factors you must consider before investing in ULIPs

• Look at the costs and decide if you are willing to pay those
• Assess if the sum assured is enough to cover the needs of your family or dependants
• Look at the performance and investment objectives of the funds the Ulip invests in
• Keep your risk profile in mind when choosing the fund categories for investment
• Don’t forget to check the insurance company’s track record and compare the options in the market

Unit-linked insurance plans or Ulips are among the most common insurance products that are pushed by agents. They offer twin benefits of insurance and investment, but it is important to see the cost attached in these instruments.  

What Are Ulips?

Ulips are insurance plans that provide a cover and also invest the a part of the premiums on your behalf. One part of the premium goes into paying for the life cover, and the other is invested in the fund of your choice from a variety of options, including equity and debt. You can even choose to invest in a combination of both, as per your risk appetite and financial goals.

Ulips also offer tax benefit under Section 80C of the Income-tax Act, 1961, up to Rs 1.5 lakh.

Things To Consider

Ulips are not simple products as they combine two aspects—investing and insurance. Here are five things you should consider before investing in Ulips.

Extra Costs: There are additional costs involved with Ulips such as existing governance charges, funds and investment charges, management charges, top-up costs, rider charges, changing fees, mortality costs and premium termination charges, among others. Not all insurance companies include all these charges in the premium cost. Hence, before contacting any insurance company, you must clarify all the charges associated with Ulips.

Sum Assured: In the event of a misfortune, the insurer will pay the sum assured to the policyholder’s nominee. It's worth noting that the greater the sum assured, the higher the premium paid. It is important to go for an optimum sum assured that can cover all the needs of your family. Ideally, Ulip products with a mortality charge should be preferred, as they offer the benefit of the return of mortality premium in the event of the death of the policyholder.

Asset Allocation of Funds: Be careful about the asset allocation of the funds in which the Ulip invests on your behalf. This must depend on your risk tolerance. While risk-averse policyholders can put their investments in debt funds, aggressive investors can opt for equities. One could also select a balanced approach by investing in a fund that offers a hybrid option, which is a mix of both equities and debt.

Compare Before Buying: It is important to compare the Ulip you have chosen with others available in the market. Before zeroing on any particular one, you must analyse the funds the Ulip invests in, including their objectives and track records. Also, look at the past performance, though that should not be the only consideration.

Insurer’s Credibility: Since Ulips are long-term investments, it is important to do a thorough scrutiny of the insurance provider’s authenticity and track record before making a purchase. It is also important to check the solvency standards of the insurance firms. As insurance firms are highly regulated, they have to maintain a set of solvency standards. The solvency ratio is a good measure of an insurer’s financial health as it assesses an organisation’s ability to fulfil long-term financial commitments.

While there are a lot of Ulips available in the market, you must evaluate all the features of a plan before investing in one.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No: 022 - 2288 2460, 022 - 2288 2470. Composite Corporate Agent License No.CA0113. Insurance is the subject matter of solicitation. ICICI Securities Ltd. does not underwrite the risk or act as an insurer. Insurance is the subject matter of the solicitation. The advertisement contains only an indication of the cover offered. For more details on risk factors, terms, conditions and exclusions, please read the sales brochure carefully before concluding a sale. ICICI Securities Ltd. is act as a distributor of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism.