Investing your hard money in any of the investment policies is a huge step on your life. It is a step towards a more financially secure future, it is a step towards a more balanced life and it is a step towards making sure that you and your family members are taken care of even in the worst of times. One such investment policy that people are increasingly looking at is Unit Linked Insurance Plan. Without proper research, investment in ULIP often doesn’t yield the result as expected. That is not to say that the plan may turn out to be bad and a complete loss, it just might not be what you were looking for and expected from your investment. Here are a few regrets that have been experienced by the people who invested in ULIP without doing proper research.
1. Not being fully aware of the product
Many times investors commit to a ULIP without fully understanding the product and its expected performance. There have been multiple cases where the investors were not fully aware of the scope of investment in the insurance part of the scheme and were left to regret the returns on the product. The securities that will be covered under the ULIP should also be well researched before trusting the policy with your money. Also, since the investments are dependent on market risks and the returns are not always what you expect them to be, you should do your research about the returns offered on the insurance component of the policy. It is important to understand the exclusions and limitations of the policy in case of the sum assured on insurance.
2. Investing in the wrong risk bracket
ULIPs are known for their flexibility as investment options, giving the policy holder control over deciding which funds they want to invest in. Investors get the option of choosing between debt funds, balanced funds and equity funds based on their appetite for risk. Most people choose to play it safe with a portfolio built on combining the three funds. However, there are often cases where the investor chooses to invest in the highest risk options in order to get the maximum benefits without researching on the risk factors involved. This practice might work wonders in one out of many cases, but most people are left to regret their choice of funds when investing in ULIP without research.
3. Not understanding the premium payment options and minimum lock-in period
Every ULIP comes with a different payment method for the premium. Some ULIPs even ask you to invest the entire amount up front in a lump sum. While others can offer options like limited premium payment, under which you have the option to pay premium for a certain number of years, and regular premium payment, under which you have to pay the premium for the entirety of the term of the ULIP. This can get tricky if you are not researched and prepared well for it. Another issue that might arise is the minimum lock-in period. Make sure that the financial goals you attach to the ULIP are long term in order to reap the maximum benefits. If you end up investing in ULIPs as a savings scheme and have to access the money for an emergency, you will end up losing money on the interest and will have to pay a penalty too if you break policy before the minimum lock in period.
4. Not being aware of the charges
Many ULIPs come with a number of different charges including mortality charge, premium allocation charge, fund management charge and policy management charge. It is very important that you understand the full scope of these charges as they can end up eating into your returns otherwise.