4 Steps for selecting the right ULIP

For a versatile profuct that is capable of adding significant value to investor's portfolios, unit-linked insurance plans(ULIPs) seem to have far too many critics. We have interacted with a number of investors who were very disillusioned with their ULIPs investments; often the disappointment stemmed from poor and inappropriate selection. We present a 4 step investment strategy that will guide investors in the selection provess and enable them to choose the right ULIP.

1. Understand what ULIP are all about:Do as much home work as possible bewfore investing in an ULIP. This way you will be aware if what you are getting into and make an informed decision. More importantly it will ensure that you are not faced with unpleasant surprises at a later stage. Fortunately for investors, the regulator has issued guidelines(on areas like sum assured and tenure), which have simplified the new breed of ULIP to a large extent.

Our experience suggests that investors on most occasions fail to realise what they are getting into and insurance agent/advisor's should get a lot of credit for the same . So you must gather information on ULIPs, the various options available and understand their working. Read ULIP-related information available on financial websites, newspapers and sales literature circulated by insurance companies.

2. Focus on your need and risk profile:Identify a plan that is best suited for you(in terms of allocation of money between equity and debt instruments). Your risk appetite and needs should be the deciding criteria while choosing the plan. As a result if you have a high risk appetite, then an aggressive investment option with a higher equity component is more suitable. On the other hand, if you are a low-risk investors, find you if the ULIP offers a minimum guarantee and the costs associated with the same.

Likewise, you existing investment portfolio and the equity-debt allocation therein also need to be give due importance before selecting a plan. Opting for plan that is lop-sided in favour of equities, only with the objective of clocking attractive returns can and does spell disaster in most cases.

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3. Compare ULIP product form various insurance companies:Compare product offered by various insurance companies on parameters like expenses, premium payments and performance among others. Make it a point to compare the ULIPs performance vis-a-vis comparable ULIP options from other insurers. Study the portfolios of various ULIPs across companies. expenses are a significant factor in ULIPs(Since they impact returns), hence an assessment on this parameter is warranted as well.

Wnquire about the top-up facility offered by ULIPs i.e. additional lump sum investments which can be made to enhance the policy's savings portion. This option enables policy holders to increase the premium amounts, thereby providing an opportunity to gainfully invest any surplus funds available. Find out about the number of times you can make free switches from one investment plan to another. Some insurance companies for instance, offer multiple free switch every year.

4. Go for an experienced insurance advisor:Select an advisor who is not only conversant with the functioning of debt and equity markets, but also independent and unbiased. Ask for references of clients he has serviced earlier and cross-check his service standards. when your agent recommends a ULIP from a given company, put forth some product-related questions to test him and also ask him why the products from other insurance should not be considered.

Insurance advice at all times must be unbiased and independent; also your agent must be willing to inform you about the pros and cons of buying a particular plan. His job should not be restricted to doing paper work like filling form and delivering receipts; instead he should keep track of your plan and offer you advice on a regular basis.