Is Investing in ULIPs a Good Idea?

Unit linked insurance plan is a type of life insurance plan that offers you with the dual benefits of insurance as well as investment. One part of your investment made is invested in the market and the other part is invested towards providing cover at the time of your death. If you die during the term of the policy, then your nominee is given the sum assured as a death benefit. Though ULIP is one of the popular life insurance products to invest in, they do have its own share of pros and cons, which you need to be aware of. Read on to know if investing in ULIPs is really a good idea.

Advantages of investing in ULIP

Safe investment: Investing in ULIP offers you a sense of safety,as your entire money is not invested in the market and another part is kept safely. Even if the market hits a low and the value of your investment drops, your family would still be eligible to receive the sum assured on your death. Thus, investing in ULIP gives you the opportunity to invest with a lot of mental peace.

You can switch between the funds: Depending on your risk appetite, you can choose to invest in different types of funds including debt, hybrid, equity, etc. Investing in equity funds is a risky choice in comparison to other types of funds. But if you are planning to invest for a long time, then investment made in equity market can fetch you higher returns as equities offer good benefits in the long term. If during the term of your policy, you feel that a specific fund you have invested in is not performing as per your expectation, then you can easily opt to switch the funds.

Market linked returns: This is one of the biggest advantages of investing in ULIPs. Unlike some different forms of life insurance, the returns from ULIP are not fixed. You can expect the returns depending on the performance of the market. Thus, there is a good chance for you to grow your money substantially. Carefully select the fund you want to invest in to ensure you make maximum profit from this life insurance product.

Disadvantages of investing in ULIP

Risky investment: The performance of your ULIP plan is completely dependent on the performance of the stock market. Due to market volatility, chances are high that you can loose some money. Unlike endowment and money back policies, ULIPs do not offer risk-free and guaranteed returns.

High premium: ULIP is largely seen as an investment plan and not a pure insurance plan. So opting for higher coverage means you would have to pay high premium for the same. Thus, ULIP might not be a profitable option for you, if you are looking to get maximum coverage. Term insurance plan makes for a good pick in such a scenario.

Lock-in period: ULIPs come with a lock-in period of 5 years, which means that you will not have access to any of your invested money for at least a term of 5 years. And even if you surrender the policy, you will have to wait for a long time to get your money back.

Conclusion

Before investing in ULIPs, it is important you assess your risk appetite, income and coverage you require. Weigh the above pros and cons to see if ULIPs would be beneficial for your risk profile. If you feel it would be, then go ahead and buy a good unit linked insurance plan. Also, when buying a ULIP, don’t forget to compare various plans online to buy the best plan at an affordable premium