5 Point Checklist to Buy an ULIP

Investments play a crucial role in everyone’s life, but so does insurance. While investments help you reap the benefits of realizing personal goals, insurance offers the protection of overcoming financial difficulties incurred due to unfortunate events. However, what if you were to find a product that offers the combined benefit of both, investment and insurance?

ULIP or Unit Linked Insurance Plan is an exclusive financial instrument that offers the combined benefit of investment as well as life insurance cover. Before you think of picking up any of these exclusive plans, make sure you follow this 5 Point Checklist:

1> Look for Adequate Life Cover:

Ideally, you should avail a life cover with ULIP, which is 5 to 6 times your total annual income. This life cover may entirely not be available through a single policy, but you can club other plans with it to avail the overall cover.

2> Understand that ULIPS are linked with markets:

The investment portion of any ULIP plan will revolve around the performance of the capital markets. As market-related investments are uncertain, you may not receive the promised benefit. Understand this uncertainty factor before buying a ULIP plan.

3> Check whether there is a Switching Facility

Switching facility allows you to choose different schemes within an ULIP, depending on their contemporary performance. To mitigate the risk associated with the underlying investment instruments, it is recommended to switch between equity and debt funds. However, such provision is available only when you have a Switching Facility with the plan.

4> Whether you can afford the total term premium payment

The premium for any ULIP plan will not be same as the traditional life insurance or savings plan. Since it carries the investment factor, the overall premium rises. As a result, you need to know whether you can afford the ULIP premium payment.

5> Are you Aware of the Taxation Rules:

Income earned over investments is taxable. In order to save on the accrued interest, it is important that you know the taxation regulations.