Life-cycle and other investment strategies in ULIPS: Know them before you buy for long term goals

The stock market provides an access to participate in the growth potential of equity asset. But, investing directly in stocks may not be everybody’s cup of tea. As a retail individual, it is better to invest through equity-oriented investments and reap the benefits over the long term. And, for those who wish to keep their saving and protection need in a single place, the unit-linked insurance plans fit the bill. Unit-linked insurance plan (Ulip), an insurance product that bundles protection and savings has undergone several structural changes and is a revamped product in its new avatar. Unlike in the past, where premiums could have been discontinued after a certain period say 3 or 5 years, the current version requires premiums to be paid till maturity, unless you choose a limited premium payment period.

- Sanjeev Puri

In simple terms, after selecting the right Ulip, one can keep investing a fixed sum for 7, 10, 12, or 15 years or even more and then get the maturity amount at the end of the term. In case of death during the policy term, there is a death benefit that is paid to the nominee.

If you are buying a Ulip, part of your premium goes towards meeting mortality charges, that is, the cost of insuring your life. The remaining amount, after deducting the insurer’s costs, is invested in different fund options like shares, debt or a mix of both. Net of charges let the premiums be invested in any of the fund options including the all-equity fund option. Use the feature of partial withdrawals during the term of the policy to fund intermittent needs such as meeting petty expenses for kids or even education and marriage needs.

Unit-linked insurance plans (Ulips) are one such tax saver which suits investors who do not have financial discipline and inclination to keep investment and insurance separate but yet need to save for their long-term goals. Additionally, they still need to take adequate life cover preferably through a pure term insurance plan.

The premiums paid, after deduction of initial charges, if any, are put into different asset classes or fund options.

Most Ulips offer several fund options across equity and debt asset classes and in addition offer strategies to make optimum use of them. The premium may be allocated in any of the largecap, mid-cap or small-cap equity fund or even in the debt funds of a Ulip as per one’s choice. It refers to a fixed portfolio strategy. Thereafter, the policyholder may choose to change the allocation proactively online or offline by making a switch. In addition, Ulips offer the following strategies for the benefit of the policyholder.