It is true about Unit Linked Insurance Plan (ULIP) is such a product that has very complicated structure to understand. An ordinary person who has interest on the product and willing to apply for one should read and understand below points to avoid possible traps associated with ULIP products.
Read What is a ULIP product to get awareness on this investment instrument well.
1. ULIP products are very complicated in structure and good effort required to understand the product to get proper benefits.
2. ULIP product have high friend cost compare with mutual funds and thus, it should be considered to buy as a long term investment focus. ULIP are NOT at all suitable if your term is 10 year or less.
3. Various costs of the ULIP instrument as well as the performance of its funds should come under your study to understand the policy is either costly to buy or excellent to get maximum benefit.
4. A good ULIP policy always has low front end cost and High performing funds.
5. Most of the ULIP policies have option for policy holder to select the required insurance cover for life and health. Automatic cover will be applicable in each ULIP product it can be vary depends on the policy.
6. ULIP policies available to plan for children’s future, retirement and investment and you can select a suitable one as per your goal.
7. A person who buys a ULIP should do his own research by comparing the ULIP product with the similar policies available in the market from various companies to identify the low cost and best performing one.
8. Due to the high commission from each ULIP product that sell, an agent can mislead you by giving immeterial facts and a policy buyer should be well aware of such traps it to avoid to get cheated by agents.
9. Any ULIP policy that you are subscribing has a possible lock in period of 3 years. You are not able to withdraw your money at this time.
10. You are required to continuously pay premium for the first three years, which known as lock in period.
11. If you cancel your policy before 3 years of premium paying term, your policy will not give you any amount back in case you have paid any premium.
12. Each ULIP policy has a free lockup period of certain days. In this period you can opt to leave the policy if not required. Standard charges applicable.
13. You could be well aware about various hidden costs associated with ULIP products. This can be in the form of surrender charges, fund switching charges, late premium charges etc.
14. Always provide the right information while applying for the policy and always keep the original documents safely.
15. Always find and keep the details of escalation paths incase of any issues happening between policy holder and insurance company. You should keep the address and contact number of authorities if required to contact them.
A well performing ULIP policy is a good instrument to get benefited from long term. A focus of more than 10 year required when applying for a ULIP. As a policy holder, DO NOT use the facility of stop paying premium after the first three years. Instead, it is always recommended to continue paying premium till the end of the term. Incase you stop paying premium after the first three years, remember the costs associated with a ULIP policy is high and that cost will be deducted from the existing amount.
Comment if you have any doubts to be rectified or seek any information or advice.