In the recent times, there has been a lot of talking and discussion about Unit Linked Insurance Plans. The discussions took place not because they are the new “in thing”, unfortunately. It is the contrary that has been the topic of discussion.
Till now what you have read and heard about ULIPs has been different, however, finance happens to be an industry that is ever evolving and there are no final rules to make a great investment. If you are about to touch a point where you have completed the three years cap on your ULIP, you must read further, and if you are thinking about investing in one, it is as important for you too.
The “blockbuster” or the “bestseller” that insurance industry has is this product. So far it has been the most popular choice for investors but is it necessary that the most popular is the best too? Not always!
Why do you invest or buy insurance? To have an investment policy or insurance that suits all your needs. A policy that is a mix of both may not be the answer.
These five points will help you make a choice easily.
In the first few years of your plan, the cost of servicing is high in ULIPs. It may be anything between 15-25 percent, i.e. for an investment of Rs100, 000; you may have anything between 35,000-85,000 as actual investment. This makes an expensive policy.
Changes in cost
The cost of insurance rises with the age of the investor. If the mortality charge is Rs A when you are 25 years old, it may go up to Rs 2A when you are fifty. This is informed to the investor only when he has bought the policy. It looks like a trick, truly speaking.
Fee and charges
The fees and charges that a company charges is divided under various heads. It is very tricky and lengthy to understand and you end up paying a huge amount as the fee and less as an investment.
In any kind of equity linked investments, fund management holds the key to remain healthy, however, to our surprise; we have never seen the best fund managers in insurance but in mutual funds industry.
The biggest hassle in insurance policies is that the investor cannot change the mode of investment or change funds in case it doesn’t do well or doesn’t suit the investor’s needs. This is however available with other investment options as you have the arrangement to switch. Don’t we all like a flexible arrangement rather than a rigid one?
What’s best to do!
It is generally advised to keep your investment and insurance separate as they have different behavior and scope. As your wealth goes up, your insurance needs go down but your investment needs go up, for example. How can you have something that behaves so differently from the other?
Buy a policy as it suits your needs with the changing times; do not go after the most popular but the best. Initially, they all look good but later it doesn’t have the same appeal, but generally it is too late by then. So make a choice when you have time and that time is “before investing”.