How to take your call on ULIP plan?

Life insurance has always been looked upon as one of the best financial security product. Today, insurance segment has been worked upon continuously with new and customized products for customer satisfaction. ULIPs are one of the best modern day investment tools that offer dual benefits of suitable insurance cover along with market linked returns. These policies are like boon for those people who want to create a safe future for their family with healthy returns on market based funds of equity, debt or balanced funds. ULIPs were launched to satisfy the investor needs of owning an insurance-cum-investment product. However, since these returns are market based every investor in ULIPs battle with the issue of whether to continue or surrender the policy when the markets are bearish and deliver below expected returns for investors.

Let’s understand the ULIP in terms of costs & performance:

ULIPs are integrated plans that combine insurance cover and cash earning element. A part of the premium goes towards a set amount of insurance cover and the balance is utilized for investments. Investments are made in equity, debts or balanced funds with varying proportions. The policy holders get the freedom to choose the fund of their choice. They get units which has net asset value or NAV which is declared on daily basis. NAV is the value based on which the net rate of returns on ULIPs are determined. It depends on the investments made and the market conditions or fund’s performances.

Since these are market linked funds, it is advisable for investing in ULIPs investors should stay constantly in touch with their financial expert who are better in place to understand market movements, statistics, graphs, business ventures, global economy etc. and can advise you accordingly whether to hold back or to sell off and release your cash from particular ULIP fund.

Besides, the market-linked criterion another factor that impacts on ULIPs performance or returns expectation is fees levied on policies. The common costs are premium allocation charge, top-up allocation charge, mortality charge, fund management costs, policy administration charge, switching costs and surrender costs.

Surrender value is calculated as fund value minus the surrender charges. But these charges differ amongst ULIPs. Due to these costs, the residual amount of any ULIP doesn’t impress to give considerable return even if the market is doing well.

In such situations following are the things that can be done: If you have already purchased a ULIP plan, take a close look at your current investment. Based on the criteria like costs, surrender charges, performance you can take a call if you have to surrender or not.

Costs: Some ULIPs have variable charges, which are high initially and then lower down later. It is advisable if you have invested for few years and the maturity date is not too far off, stay invested. In case your plan has ongoing regular charges eating up your premium and fund value then you could surrender the policy.

Surrender charges: It could be possible that the surrender charges are high when you wish to surrender the policy right away. If you wait for some more time, they might lower down. Wait for charges to get low or nil and then go ahead with things.

Performance: If you find that your ULIP is performing well then there is no need to exit the policy. Also, it is important you look at other financial instruments such as Gold ETFs, PPF and bank FDs to compare what your ULIP is offering.

Source:http://www.articles.howto-tips.com/HowTo-Article-Directory/how-take-your-call-ulip-plan