What you should consider when you invest in a ULIP Policy

What would be the ultimate way to save your money and at the same time have it increase? What if we told you that there is a scheme that helps you do just that and all you have to do is pay a set amount every month for a stipulated period of time? No, we’re are not talking about some Ponzi scheme that may or may not give you any returns. We’re talking about ULIPs or Unit Linked Insurance Policies. 

ULIPs are both insurance and investments. In a Unit Linked Insurance Plan the premium that the policy holder pays is divided into two parts, one goes to the life insurance and the other goes to mutual funds as investment. A ULIP holder has the option of either investing in equity or in debt. An aggressive policy holder will choose to invest his money in equity while a conservative policy holder might chose to invest his money in debt. The money is invested during the term of the policy which may range between 5 to 15 years. The returns from any ULIP are completely exempted from tax. 

A ULIP policy is designed to suit the needs of the policy holder. For it to effective one needs to invest in ULIPs the right way. Let us tell you how. 

1.  If you are single and just starting out with your career, you need low protection but high wealth creation and accumulation as you are just starting out in life. You can choose a ULIP plan with a low death benefit and allocate more of your money to equity oriented investment funds.

2.  If you are newly married and have no kids, your protection need is medium and the need for wealth creation is high since you might be planning on starting a family. You can choose an Insurance Plan with high death benefit and an investment plan that focuses on balance and growth of your investment funds.

3.  If you are married with young children, you need high protection as well as high wealth and asset creation because you need to save for your kids. You should choose a ULIP plan with increased death benefit and balanced investment fund for the creation of assets. 

4.  If you have a well settle job, are married and have school going children, you need high protection and high wealth creation along with liquidity to meet your child’s needs. Opt for partial withdrawal of your policy to meet your liquidity needs.

5.  If your children want to pursue higher education or start their own business or want to plan their wedding, you need medium protection again and also liquidity to meet their needs. You can again liquidate accordingly.

6.  If you have independent children and are nearing retirement your protection needs are low but you need to accumulate wealth for your retirement. At this stage of life you should lower your death benefit and opt for debt oriented investments.