Just like investments are subject to market risks, they are also subject to changes in one’s life. Your criteria for investing in a particular instrument and the returns you expect from it differ as you transition from one life stage to another. Hence, choosing an investment option that adapts to your changing life stages is important. A ULIP is one such option. Fundamentally a life insurance product, ULIPs also offer the policyholder the added advantage of market-based investment options. The unique structure and functioning of ULIPs ensure that, whether you are a bachelor in your 20s, a householder in your 40s, or a retiree in your 60s, you continue to reap ULIP benefits.
Features that make ULIPs perfect for changing life stages
Variety of investment options
One of the main features of a ULIP is that, as an investor, you can choose between debt fund options, equity, and even a mixture of both. If you are in a life stage where you can take risks and have no liabilities, for instance, in your 20s, you can choose to invest majorly in equity funds. If you are at a stage where you have dependents, then taking risks may not be a wise option. In such a scenario, you can opt for debt funds. A ULIP is thus a suitable product for every life stage.
Fund switching option
Just because you chose to invest in equity funds in your 20s, when you were a bachelor, does not mean that you have to stick with it for the rest of your ULIP journey. One of the most distinct ULIP benefits is the fund switching option, wherein you can transfer your funds from one asset class to another. So, as you reach a life stage where taking many risks seems like a difficult route, you can simply transfer your funds from equity to debt. You no longer have to buy a separate product to invest in debt instruments and you do not have to surrender your equity funds completely either.
If you feel that debt funds are not providing you with the results you want, then you can switch your money back to equity. For instance, in your 40s, you may have some goals for your children, such as sending them abroad for higher education. Or you may want to start preparing for your retirement. Opting for equity funds may be a better option then. Using a ULIP calculator before switching funds can help you come to a better decision.
Life insurance coverage
As you move from one life stage to another, your health and other factors, too, change. The need for a life insurance policy increases as one begins a new family and has more people to look after. Other kinds of financial protection are required as well. A ULIP can help meet these requirements as well. With the life insurance coverage from the ULIP policy, you can rest assured that, if an unfortunate event were to occur with you, the sum assured will take care of your loved ones financially.
As per the wordings of some policies, if the fund value of your ULIP investment is higher than the sum assured amount, then the beneficiaries receive the fund value amount. This substantially increases the level of financial backup your loved ones will receive.
Additional financial protection
As you get older, you may also become more vulnerable to serious, life-threatening diseases. A health insurance policy, though useful, may not prove to be of much help here. Therefore, you should consider opting for a rider such as the critical illness rider with your ULIP plan. This rider offers the policyholder a lump sum amount if they get diagnosed with a critical illness covered by the policy.
Other riders, such as the accidental permanent disability rider and the accidental death rider, can provide an additional lump sum amount in case the eponymous events occur with the policyholder. A ULIP calculator should help you understand the increase in premium due to the addition of these riders.
If you are planning to invest in a ULIP throughout your life, then the wheel of life strategy is the best bet.
Understanding the wheel of life strategy
Under this strategy, your money is majorly invested in equity funds during your fund’s initial phase. As a considerable amount of benefit is gained from the equity market, your funds are slowly exposed to debt funds. This helps stabilise the risk factor during a stage in your life when you are looking for low-risk options. By the time of maturity, your entire ULIP funds are in debt investment options.
Before going ahead with any strategy or major decision, do consult a financial expert.