How can your ULIP keep up with your changing life stages?

Any financial advisor you go to will recommend you to make investments based on the different financial goals at different stages of your life. That’s the key to making strategic investment decisions. A Unit-Linked Insurance Plan (ULIP) is a helpful investment product that comes with various benefits and features that allow it to keep up with your changing life stages. Here’s how:

Provides a life cover throughout the ULIP term

No matter your age or life stage, having a life insurance cover in place is crucial given the uncertain nature of life. One of the important ULIP benefits is that in addition to serving as a good investment, it also offers a life insurance cover. It uses a part of the premium paid by you towards the insurance component while the remaining is invested in securities. This is essential in securing your family’s financial future. In case of the death of the policyholder, the sum assured payout will help their family to meet financial obligations. 

The sum assured amount will help in several ways. It can be used to meet monthly expenses, maintain the standard of living, service debts, if any, and help meet the family’s financial goals. The life insurance cover will also ensure that the life savings of the family are not depleted.

Accommodates different life goals 

ULIP policies allow you to invest in equity funds, debt funds, or a combination of both. Depending on your current risk tolerance that is determined by your age, income, financial responsibilities, dependents, debt, etc. as well as your current financial goals, you can decide which type of funds you want to invest in. However, it’s natural for your goals and your risk appetite to change with time and one of the major ULIP benefits is that it allows you to switch between funds multiple times over your investment horizon. 

So, for instance, if you invested in a ULIP fund in your 20s when you had no dependents, and when your goal was to save for the down payment of your first home for which you had an investment horizon of 10 years, you may have heavily invested in equity. But in your 30s, if you are married and have children, your risk appetite may decrease and your goals may change so you may want to switch to balanced funds. You can take the help of a ULIP calculator online to determine the amount you should invest now in order to meet different goals over time.

Allows you to capitalise on market conditions 

The most basic investing mantra is to buy low and sell high. This requires you to make investment decisions according to the changing market conditions. In a ULIP policy, you can do so. The fund switching facility allows you to switch between funds depending on how they are performing. 

ULIPs also come with a top-up premium feature which allows you to increase the premium you’re currently paying so that more money can be invested when the market conditions are favourable. Not only does this reduce the overall cost of your ULIP plans but also increases the life cover component. ULIPs allow you to indulge in hands-on investing by deciding the right asset allocation and rebalancing your portfolio yourself. 

Offers benefits for a long-term investment horizon

ULIPs come with a mandatory lock-in period of five years. However, when strategically approaching a ULIP policy as an investment, it pays to stay invested for a longer time. Staying invested for 10 years has given returns of around 12 to 15% historically to investors. A longer investment horizon also allows you to map and meet different life goals with the help of your ULIP plan. 

ULIP plans come with a partial withdrawal facility where you can withdraw a proportion of your funds at any point post the lock-in period. You can use that money to meet different goals such as your children’s higher education. Some insurance providers also offer benefits of loyalty additions and boosters for staying invested for a longer period. For instance, insurers may refund the mortality charges at maturity. Some add a percentage of the premium to the fund at the time of maturity to increase the overall fund value as a fund booster incentive for a policy term of 10 or more years. 

Final thoughts

ULIP policies combine the benefits of a life insurance policy and a flexible investment allowing you to meet different life milestones effectively. It’s a prudent investment to consider adding to your portfolio.