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In early May, when the prices of the stocks fell, the investors were hoping to see the market rise but the hope just got washed out when the market swiftly moved southwards. The prices fell furthermore and the stock market was in mayhem. However, the market has regained its lost charm steadily and the smile is back on the faces of the investors. Today, the market has touched its all time high at 14k and it is getting more and more exciting.
It is a known fact that investment in market requires an individual to have a good risk appetite. The yo-yo performance of the market a few months ago has led many investors to reconsider their investment portfolios. Interestingly, the downfall of the market has not had a negative impact on the Unit Linked Insurance Plan (ULIP) holders.
ULIPs, a result of recent innovation entered the insurance market with the private insurance companies and became a favorite in a short stint of time. Insurers were skeptical of introducing it since traditional policies were the taste and flavour of the laypeople. Endowment, Moneyback and Whole life policies were the safest choice that an individual could think of because of the maturity returns. But with ULIPs, investors found a new horizon and an avenue to explore. And when it hit the market, it took no time to become the most preferred choice among investors. Today, we have an insurance industry, which is more dynamic and vibrant in nature and perhaps for the same reasons one can expect more choices in the future.
Coming back to the working of ULIPs, it functions differently from traditional policies in which an individual pays premium and receives the proceeds in the form of maturity benefits. Unit linked plans also known, as investment plan gives one the much- needed insurance coverage along with the option to invest. An opportunity to invest in equities is an eye-catching element. According to the plan, the investor has the choice of investing in any one of the funds that is offered by the insurance companies. But you do need to keep in mind that the investments in stocks are subject to the vagaries of the market. The volatility in equity markets can keep you uneasy and disturbed since you wouldn't like to see your reserve being affected. So, depending on your risk profile, take the plunge in the market and invest in the fund that best suits you. It is always advisable to stay invested for a longer time. Entering the market with short-term investment goals is not really recommended. Following the flock blindly will not be of much help. Only after having done your homework and consulted the ‘experts’, take your decision. To get the best, make an analysis of the various insurance companies offering unit linked products.
There are a host of reasons why ULIPs rule over traditional policies. Sources point out that the NAVs of unit-linked products have performed better than mutual funds. ULIPs were found to be less risky as they maintained diversified portfolios and held stocks for longer time. Besides, while choosing unit linked plan, the policyholder gets to choose the fund in which he wants to invest. Secondly, the fund value is NAV based, the results of which are disclosed on a regular basis. Thus the policyholder can draw his judgment based on the performance of the funds. One of the best advantages of having a ULIP is that the policy has lesser chances of getting lapsed. Lets assume, for some reason, the policyholder fails to pay the premiums. In such a case, the cover under the policy will continue and the premiums towards the life cover will be debited from the unit fund. So, the only chance of the policy getting terminated is when the unit value is inadequate to cover the charges. The working of ULIPs funds can be compared to that of mutual funds wherein the fund management charges are deducted from the premiums paid by the policyholders. However, the management charges get minimised with the succession of each year. Well, there is a certain set of laws that you need to be aware of. It is known that on the death of the policyholder, the nominee gets the entire sum assured or the value of the fund, depending whichever is higher. But you can avail this benefit only if you have paid your entire premiums. If the premium amount has been deducted from your fund units to keep your policy alive, what your nominee will get in hand is only the fund value. And if the market happens to perform disappointingly, the sum assured that your nominee will receive will be lesser than your fund value. Hence, it is always advisable to pay your premium regularly and on time. That’s what’s best for you to avoid atrocious situations.
In conclusion, ULIPs will continue to be a favorite option among investors. The downfall of the market did not have a negative impact on unit-linked plans and the strong approach of the people towards it proves that quite robustly. Probably, laypeople are finding it exciting to explore more options. After all it is worth to take a bit of risk to get those extra bucks!!
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