ULIP helps get to long-term goal

Mahesh earns Rs 10 lakhs per annum. Categorized as high risk customer with work involving extensive travel, Mahesh has little time towards investment planning. Due to the risky nature of his work, he knows it is important to own a risk cover to benefit his family. He needs to save enough money to meet his children's higher education and marriage expenses.
Perhaps, Mahesh should consider a unit-linked insurance plan (ULIP). These are investment products bundled with an insurance component. These products are ideal to achieve long-term goals for investors who have little time to manage their finances.
Here are some features that make ULIPs a class apart from other instruments:
Long tenure products
Investors can systematically invest in ULIPs at periodic intervals where the investor benefits from rupee cost averaging. To ensure that ULIPs are treated as long-term insurance products, the Insurance Regulatory and Development Authority (IRDA) has increased the lock-in period for ULIPs from three to five years. The lock-in period of five years affects its liquidity coordinate.
Further, a host of charges are deducted from the premium component and also the fund value. Since these products are burdened with high quantum of front loads, it only makes sense to stay invested for longer tenures. Otherwise, these charges can eat into your returns.
Flexibility
The life cover component of ULIPs that a nominee receives is the higher of the fund value and sum assured or both, in the event of unfortunate death. The investment component of ULIP can be in debt, equity or a mix of both according to the risk appetite of the investor.
As one ages the insurance needs change and ULIPs take into account this need. Investors have the option to increase or decrease the extent of protection over the term of the plan. One can also pep up the insurance component by including critical illness riders.
You can top up the existing fund value whenever you choose to. Usually, ULIPs also allow fund houses to switch between funds at no extra fees in the form of switching costs. Since these are long-term investment products, it makes more sense to have a greater exposure to equity than debt. ULIP products with debt concentration with their relatively lower returns, can succumb to inflation risk in the long run.
Tax benefit
ULIP products qualify for tax deduction. The returns are tax-free after the five year holding period.
Choose ULIP with potential
Though ULIPs can boast of achieving long-term financial targets, you must exert caution when selecting the scheme. Nobody can truly predict the economic climate, inflationary pressures and market conditions over a distant future. Carefully select an asset mix that is not only in sync with your risk appetite but also has the potential to generate good returns in the long run.
Before buying any ULIP product, get to know the various charges and fees. Any penalty like premature redemption charges must not come as a surprise to you later. Finally, if you have good financial discipline and the time, build a portfolio of insurance cover, handpicked equity funds and retirement products such as PPF.

____________________________
Life Insurance | Health Insurance | Ulips | Term Plan