Uncertain economic trends, especially in the pandemic scenario, have caused financial distress to many families. As a result, people have preferred investments and life cover to reduce their financial burden and ensure maximum protection. Therefore, ULIPs as investment insurance have become one of the most prominent sought after solutions for your family’s financial needs. However, are ULIP plans optimal solutions for short-term gains? Read on to find out.
What is a ULIP plan?
A ULIP plan is an insurance product that uses the premium amount for providing dual benefits: insurance and investments. One part of the premium amount is used for life cover and the other portion is invested in securities for good returns. In addition, the insurer will provide a set of funds from which you can select based on the risk appetite. The TATA AIA ULIP plan provides a range of funds with various combinations to suit different financial needs. For example, you can choose debt funds if you are risk-averse, equity funds if you can afford high risks and hybrid funds if you seek a balance between risk and returns.
Are ULIPs an optimal solution for short gains?
ULIPs offer varied benefits that provide optimal long-term benefits. Here are a few pointers to elaborate on this view.
- Market-linked returns:As ULIP returns are market-linked, volatility is a significant factor here. Global political and economic factors cause stock price fluctuations to a great extent. The effects associated with an economic downturn will settle and the markets will get corrected at the appropriate price levels in due course. However, these are cyclical and happen over the long term. Therefore, a ULIP policy will also balance well and provide optimum returns in the long term.
- Lock-in period: A ULIP plan has a lock-in period of five years. Therefore, partial withdrawal is permitted after that. The lock-in period is considered a good feature for two reasons. First, it will encourage the discipline to invest regularly. Second, it provides enough time as the market stabilizes and ensures you stay invested for a long time for better returns. Hence, ULIP cannot be beneficial in the short term as liquidity is restricted. Although insurers provide options for surrendering the ULIP investment, it comes with an additional cost.
- Flexibility:ULIP plans ensure flexibility by providing you with the option to switch between the invested funds based on the market condition. For example, if you had invested in a high-risk equity fund decreasing in its value, you can choose to invest in a conservative option by switching to a debt fund. Thus, with effective switches, you can increase your wealth in the long term making it an optimal solution. You can use the ULIP return calculator and approximate the value based on the premium amount and the policy duration. As a good investment practice, try not to surrender the policy before it expires.
ULIP plans can offer higher returns when you make the right choice of funds and necessary switches while staying invested for a long time.
Life insurance and investment are two important priorities in life. And, ULIP is certainly one of the best options to provide them in the right proportion. However, it is an optimal solution in the long term considering the market-linked returns, lock-in period and flexibility options. So, choose the funds wisely, stay invested and be proactive to switch between the funds for the best returns!