Investing in a ULIP plan is a good move to boost your investment portfolio for the future. Not only does it give you decent life coverage to financially safeguard your family in case of any future mishap, but it also ensures market-linked investment returns. However, there are some common errors that people often make while investing in these plans.
Here are some of the mistakes that you should look to avoid while investing in a ULIP plan.
1. Not checking the lock-in period-
You should know that ULIPs have a 5-year lock-in period and so you should avoid withdrawing money too early. This will only lead to penalties that will eat into your returns.
2. Excessive switching of funds-
You should not frequently change funds when it is not required. Exceeding the periodic free switch quota (offered by most insurers) will only lead to higher charges and lower returns in the long haul.
3. Improper fund allocation-
Don’t just allocate funds on a whim. You should allocate your investments across multiple types of funds, depending on your age, future goals, risk profile/tolerance, and so on. Most people randomly allocate investments across funds without understanding their type, risks, performance, etc. This leads to the investment not performing well at all. Using an ULIP Calculator can help you determine the best fund allocation strategy based on your financial profile.
4. Hidden charges-
There are several charges associated with ULIPs. You should have an understanding of all these charges and closely examine the policy document for this purpose. From policy administration and fund management to mortality charges, there are multiple costs that you have to factor in, since they will ultimately impact your returns.
5. Unrealistic expectations-
Most people expect huge returns from their ULIPs, particularly in the short term. However, you should know that remaining invested for a long time will help you weather temporary fluctuations and performance dips, while helping you gain from compounding. There are no magic results in the short term. The market also changes regularly and you have to keep reviewing your funds and how they’re performing, while switching them strategically in order to keep your returns steady and consistent.
6. Miscalculating the premium-
You should make sure that the premium you choose to pay is suitable for your financial circumstances and long-term objectives. You should be able to afford this without any financial compromises. An ULIP Calculator can assist in determining the right premium amount based on your budget and investment goals.
7. Depending only on the agent’s advice-
You should not rely only on the advice provided by your agent. Make sure that you do your research and compare plans thoroughly before finalizing your decision. You should know the anticipated returns, type of funds to invest in, the premium amount you can afford, and the policy features that are in sync with your objectives. Concluding Thoughts It is worth knowing that you should invest in a ULIP plan for the future corpus that you can build and it requires a lot of planning, reviews, and strategic decision-making on your part. Also don’t depend solely on these plans for life coverage, since it may be lower than what your family needs. Make sure you check the above-mentioned mistakes and avoid them while investing in these plans.
Anantha Nageswaran is the chief editor and writer at TheBusinessBlaze.com. He specialises in business, finance, insurance, loan investment topics. With a strong background in business-finance and a passion for demystifying complex concepts, Anantha brings a unique perspective to his writing.
