Investments are no longer just about saving for the rainy day. We want to invest to get best possible returns on our investments to achieve our life goals and aspirations. Over the last few years, Unit Linked Insurance Plans (ULIPs) have emerged as a preferred choice of investment for wealth creation over the long-term. It meets the dual purpose of providing life cover along with returns from investment to fulfill financial goals. In addition, ULIPs also provide tax benefits.
But before you invest in ULIPs, it is important to be clear about certain factors like your needs, life goals and risk-taking capacity, among others, so that you can zero in on an investment plan in keeping with your life goals.
Here are a few factors to keep in mind as you go about finding the ULIP that best suits your needs :
1. Define your life goals
Meeting life goals demand smart investment decisions. Be it purchasing your dream home or traveling to New Zealand to tick off bungee jumping from your bucket list; each goal needs to be planned for. Thus, identifying your life goal is the first step before making any investments. This will help you figure out the amount required to achieve your goal and the time frame in which you want to accomplish your goal. For instance, once you are clear that you want to purchase a luxury car in five years, it is easy to decide on the amount of investment needed, type of investment strategy and the funds in which you would like to invest that will enable you to accomplish your goal and put you on the driver's seat!
2. Be aware of your risk appetite
A crucial element of life and investment planning is to be extremely aware of your risk appetite. The rule of the thumb is that you can take greater risks when younger as your risk appetite decreases as you grow older. There might be other factors including the number of dependants or an illness, which might curtail your risk-taking capabilities. Being aware of your risk appetite will help you in deciding the kind of ULIP funds to go for.
High-risk appetite means you can go for equity fund otherwise debt funds might be a good option for you. Bajaj Allianz Life Insurance offers a wide range of ULIP funds in keeping with your risk appetite. Backed by strong fund performance, they are geared to help you meet your life goals.
You can also check if the ULIP comes with free fund switching options or not. Fund switching feature enables you to take advantage of market volatility by switching from one type of fund to another as per your needs and risk appetite.
3. Check the fund performance
Before you invest check the past fund performance on third-party rating websites, such as MorningStar, to get an idea about the past returns of the fund. It is best to check the fund's performance for a period of at least five years, to get an overview of consistency in fund performance during both market upswings and downswings. The past fund performance will give you an indication of the kind of returns you can expect from your investment, however past performance is not indicative of future performance.
4. Find out about the financial soundness of the insurance company
Do some research on the insurance company's reputation and financial soundness before buying their ULIP policy. You must look at the Solvency Ratio of the insurance company which indicates whether the company is financially capable to meet the needs of all its customers in case of an extreme situation. While the insurance regulator (IRDAI) stipulates that solvency ratio should be at least 150%, some of the leading organisations have better and stronger ratios. You must also look at the Claim Settlement Ratio of insurers. A high claim settlement ratio implies that the probability the insurance company will settle your claims is much higher.
5. Check for a little extra!!
Who doesn't like a little extra in life? Many ULIPs provide additional benefits to investors like premium top-ups, option to buy riders, etc., so that investors can customize their ULIPs as per their requirements. Bajaj Allianz Life Insurance has recently introduced unique features in its recently launched ULIPs - Return of Mortality Charges (RoMC), which returns the entire mortality charges paid by the policyholder during the course of the policy term, on maturity. It significantly increases your returns on maturity. Another feature introduced by Bajaj Allianz Life Insurance in its ULIPs is the Return Enhancer. Here, if a customer opts to receive the maturity proceeds in instalments (and not a lump sum) over a period of five years, then he gets the benefit of Return Enhancer, which is an addition of 0.5% of each due instalment. This enhances your returns on investment. Look for such additional benefits as you go about choosing the right ULIP for you.
Investing with the idea of just saving tax is passed. Go for goal-based investments to achieve your long-term goals. These factors will help you decide on the ULIP, which best meets your life goals and needs.
Learn more about ULIP plans and investment tips to achieve your life goal with Life Insurance Guide from Bajaj Allianz Life.