5 factors that you should consider when investing in ULIPs in your 20s

Term Insurance vs ULIP!

 If you’re still young enough to have fun but still ready to lay a foundation for the kind of lifestyle you hope to have in the future, the time to start planning is now. While you are in your 20s, your tolerance for risk is likely high, your financial responsibilities /goals start with small and short-term in nature, such as planning for that vacation, down payment for a vehicle and move towards huge responsibilities and long-term goals, such as down payment for house property, children’s educationetc. Short-term goals can be met easily by saving diligently for a couple of months and then spending again.

However, long-term goals need proper investment of time as well as money.

Time, when it comes investing can be tricky to deal with as it can be the best thing for you, but it can also be a detractor. If you start saving and investing in your 20s there is a great case to be made for investing as much as you can. You might want to tell yourself that you can save later, but later often turns into years and puts you behind the curve.

5 factors that you should consider when investing in ULIPs in your 20s

1. What investment option is best suited for a person in their 20s?

While in the 20s, you might want to consider tax saving investment options like life insurance policy especially Unit Linked Insurance policy or Equity Linked Saving Schemes. A ULIP offers you dual benefit of insurance as well as investment. A part of the premium goes into buying life insurance cover while the remaining part of the premium is invested into asset class (Equity, Debt, Hybrid) as per one’s choice. Choosing the right ULIP according to your financial capabilities and future needs is essential to maximize returns. Here are the factors that an investor needs to consider while investing in a ULIP:

2. Match your risk appetite with what a ULIP offers

Market risks on a ULIP’s underlying investments are the same as that of mutual funds or direct investments in equities / fixed income securities. This investment risk of the portfolio is borne entirely by the policyholder and will need to be monitored actively. Thus, you should ascertain your risk appetite, financial commitments and funding needs before choosing the appropriate plan. ULIP offers a range of investment options, such as equity, debt, and balanced funds. Therefore, choose a policy that provides the max. number of fund options that suit your changing investment objectives and risk profile.

3. Life cover and Premium payment options

One of the main purposes of buying ULIPs is to get a life cover. Therefore, compare ULIP plans according to the life cover they provide. ULIPs usually offer three options for premium payment. Make sure you choose a plan that offers you the option you are most comfortable with, be it Single, Limited, Regular premium payment

4. Charges

Charges such as mortality charges, premium allocation charges, policy administration charge and fund management charges are deducted from your premiums and the remaining amount is invested. Therefore, opt for a ULIP with lowest expenses to get better returns.

5. Claim Settlement ratio

All the efforts put towards choosing the right plan would go in vain if your claims are not addressed when required. Claim settlement ratio is the number of claims an insurer settles with respect to the number of claims. Always opt for an insurer with a high claim settlement ratio, to ensure hassle-free processing of your claims.

6. Switching flexibility

An investor’s market view, time horizon, and risk appetite will determine the initial allocation but these change over time. ULIPs offer the flexibility of switching between the funds based on changes to each of these factors. The number of free switches during a policy year, the cost of switches and the ease of switching are important evaluation points.

Awareness is the first step towards making effective decisions. Appreciating all the nuances of a powerful financial product like a ULIP will help you to decide the perfect plan for you.

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