Understanding financial security might seem like a daunting concept at first, but with the right approach and strategy, you can unlock financial stability in your 20s. Financial planning in your 20s is primarily about life cover and smart investment options. Imagine getting both through a single investment. Enter ULIPs with their dual benefit. But how does one choose the right ULIP? To answer your concerns, we have prepared a little guide on ULIPs and making the right choice.
What is ULIP?
First things first, let us discuss what is ULIP. A Unit Linked Insurance Plan is an investment instrument where a portion of your premium is allocated to life cover, and the remaining amount is invested in a fund of your choice. This type of investment offers dual benefits of life cover and market-linked returns.
As an investor still in your 20s, a ULIP is a smart investment decision due to its ease of investment and impressive returns.
Choose the Right Plan with these Smart Strategies
You must have already heard about the numerous benefits of investing in ULIPs. Let’s now understand how you can choose the right ULIP plan to maximise benefits:
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Know Your Financial Goals
As a young adult, understanding your financial goals might seem overwhelming. Here’s what you can do: pen down your goals, whether it is purchasing your dream car, a house or heading to a dream vacation. Write it all down, along with an estimated amount that you are going to spend. This will help you choose a ULIP scheme that, in addition to offering life cover, also allows you to invest in a fund that is typically known for returns enough to fulfil your financial goals.
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Evaluate the Charges
When you invest in a Unit Linked Insurance Plan (ULIP), it is essential to consider the various charges associated with it. Because they involve insurance and investments in the money market, there are some charges that are to be borne by you.
What are ULIP charges? Charges that you have to pay for investment include premium allocation charges, administration charges, fund management charges, mortality charges, switching charges, etc.
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Rebalance Asset Allocation
A major part of investing in ULIPs is choosing the right funds. Under ULIPs, you can choose from different types of funds, such as equities, mutual funds, and debt funds, among others, where you want a portion of your premium to be invested. Ensure that you choose a fund based on your risk tolerance and rebalance it as your financial goals evolve over time.
For instance, typically, an investor who can sustain taking risks can opt for equities, whereas investors with a lower appetite for risk can go for debt funds.
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Compare and Then Choose
Remember that the market is filled with multiple types of ULIP schemes that come with flashy features but might not align with your financial goals and risk appetite. This is where the “comparing first and then choosing” rule comes into the picture.
What can you do? Find a reliable platform that offers a ULIP calculator where you can fill in the necessary details like policy tenure, premium amount etc, to get the potential returns of different types of schemes.
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The Insurance Company
ULIPs are offered by different insurance companies. The credibility and solvency of these companies play a vital role in deciding which plan you should invest in. It is advisable to choose an insurance company with a good market reputation and a high claim settlement ratio. The IRDAI publishes the annual CSR report of every insurance company, which you must check.
What is the Claim Settlement Ratio? The claim settlement ratio represents the insurance companies’ ability to settle the claims raised by policyholders.
Investing in the 20s: Do You Need It?
Investing in your 20s might not seem like a necessary step, but over the years, you are bound to realise the importance of investing early. Simply put, starting early ensures that you can invest small amounts over a long period, which helps in achieving your financial goals rather than mustering larger funds in a short period.
For instance, If you start investing ₹2,000 a month when you are 20, you will have accumulated ₹1.26 crore by the age of 60, if the investment offers even 10% returns.
Over to You
ULIP is a hybrid investment instrument that offers both life insurance coverage and investment benefits. All you need to do is find the right plan by evaluating factors like financial goals, risk appetite, credibility of the insurance company, etc. Thankfully, you have tools like a ULIP calculator and several online portals that allow you to compare ULIP schemes easily. Ensure that you compare plans and select the one that best aligns with your financial goals and responsibilities.
