There are many life goals that one would want to fulfil in their lifetime. From buying their dream home to planning a trip abroad. From saving for their child’s marriage to planning an early retirement, a life goal could be anything. In order to be able to meet such life goals, you need to have enough wealth when the time comes. Achieving these goals merely on the basis of savings may not be possible. Which is why it is recommended to invest in a ULIP plan. It offers dual benefit of investment, which helps in increasing your wealth and secures the future of your loved ones from unfortunate circumstances. One common question that people have when they invest in ULIPs: is it for long-term or short-term? Read below to understand more about this.
What is ULIP?
A ULIP plan is a life insurance policy in which the policyholder can enjoy two benefits: investments and life insurance cover. The insured can invest in equity and debt funds to increase their wealth as per their requirements. They are also offered life insurance cover to protect their loved ones from life risks. Based on the type of investments opted for and the market situation at the time of maturity, the plan offers good returns.
What should be the term of your plan?
As mentioned above, a ULIP policyholder get to enjoy the dual benefits of investment and insurance. When you plan on investing in a ULIP, the main objective will be to gain enough wealth in returns from your investment, which would help you in fulfilling your life goal. Usually, ULIPs come with different terms. This term can be from 5-10 years and 15-20 years. The policy term of your ULIP should match your life goal. If your life goal is something immediate, such as paying off loans, saving for a car or for a trip abroad, you can go for a shorter duration (that of 5-10) years as it will help in achieving your short-term goal. However, if your goal is to save enough for your child’s education or marriage, or want to retire early, a short-term plan will not be able to help you in achieving these goals. It would be beneficial to go for a plan beyond 10 years.
Should the plan be short-term?
The whole objective of ULIP is to let the policyholder accumulate enough wealth to fulfil their dreams. As a policyholder, you can enjoy ULIP benefits when you go for a longer-term. In ULIPs, you can invest in either equity funds, debts funds or both. As these funds are market-linked, they carry a risk factor. Equity funds carry a high-risk factor as your money is invested in stocks of market listed companies. Market fluctuations can impact these stocks; however, you can gain high returns as well. On the other, debt funds are basically government bonds and securities, corporate bonds, money markets, etc. Such funds have a low risk factor. Balancing between them can help you in getting good returns.
For example, if your policy term is of 10 years, it could qualify as short-term. However, there are disadvantages to a short-term ULIP; the biggest being lower returns. As the investments will be short-term, so will be the returns. Not to mention that market fluctuation could reduce your gains, essentially going against your plan. Also, in short-term ULIPs, you may not get enough time to rectify your mistakes to be able to regain your returns.
Why should you opt for a long-term ULIP?
With a long-term ULIP, your returns could be greater as compared to a short-term plan. With long-term, you get to experiment by switching your funds. Switching of funds allows you to allocate your money from one fund to another in order to secure your returns and avoid exposure to risk. This can help you in growing your wealth steadily over a certain time period. Also, a long-term plan helps you in understanding the market better; this helps in taking informed decisions.
It is up to you as the prospective customer on whether to go for a short-term ULIP or long-term ULIP. However, based on the information above, benefits of ULIP are greater when you opt for a long-term plan. You can get in touch with your insurance advisor to know more about the terms and types of ULIP.