Points to Consider Before Choosing a Unit Linked Insurance Plan

Points to Consider Before Choosing a Unit Linked Insurance Plan

For a long time, investments were all about the share market and mutual funds for high-risk investors and fixed deposits and saving certificates for the low-risk investors. Now, even insurance plans – to be precise, Unit-Linked Insurance Plans or ULIPS have become viable investment options, especially for risk-averse investors.

One of the easiest ways to get the benefit of insurance as well investment is to buy a Unit Linked Insurance Plan (ULIP).  The best ULIP plans provide you with an excellent opportunity for seasoned investment with tax exemption benefits. However, you must take into consideration the below features before purchasing a ULIP.

Points To Consider Before Choosing a ULIP

1.       Don’t Let Tax Planning Be the Sole Motivator.

While tax planning is one of the primary reasons to purchase a ULIP plan, you must also consider other objectives for which you want to buy a ULIP policy. Do you wish to purchase ULIP for long term wealth creation, retirement planning, or to build a corpus to fund your children’s education or marriage?

Having a clear goal for your ULIP purchase will assist you in choosing the best ULIP plan. If you are driven to buy ULIP solely to save on taxes, you might purchase a wrong product or a policy which is unsuitable for you.

2.       Check for Charges Which Can Derail Your Planning

All Unit Linked Insurance Plans come with a set of charges such as an administration charge, a fund management charge, a mortality charge and a premium allocation charge. You must understand that these charges can critically affect and reduce the amount available for investment.

For example, the premium allocation charge is usually higher in the first few years of your policy term. Staying aware of these charges will help you to keep your plan aligned with your financial goals.

3.       Go For Long Term Investment Horizon

Many ULIP advertisements may showcase attractive short-term premium payments. While this is a tempting move by marketers, you must follow the golden rule of opting for long-term investment when it comes to ULIP. You must remember that your life cover will collapse after you stop paying the premium.  In case of your untimely demise, only the residual fund will be paid to the nominee and not the sum assured. Also, there are different charges which would be deducted from the residual fund till it ends and your policy expires.

Hence, when it comes to a ULIP investment, choose a long term investment plan.

4.       Always Opt For Maximum Sum Assured

One may think that a minimum sum assured will earn better returns. However, it would be best if you opt for the highest sum assured ULIP insurance policy as the mortality charges are low, and in the long term, it won’t affect your corpus badly.

Alternatively, you can also check maximum as well as minimum sum assured options to get a clearer picture. The sum assured should be sufficient to support your family in case of your unfortunate demise. Hence it is advisable to opt for the highest sum assured.

5.       Choose Investment Option Based on Risk Appetite

Majority of people choose an investment plan without understanding the various risks involved. You must remember that ULIP is an investment instrument which is linked directly with the market and hence a fixed return is not guaranteed.

It would help you significantly if you take a look at the past performance of the various funds before making a plan selection from the array of best ULIP plans available. You can easily find this information on the company websites. Also, avoid investing in funds which have consistently underperformed in the market.


Once you are aware of how to choose the best ULIP policy for you, it is important that you undergo all the terms and benefits of your selected ULIP plan. It is advisable to read all the policy documents carefully, which will aid you in making the right decision.

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