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ULIPs: A holistic risk management tool

ET CONTRIBUTORS|
Jan 02, 2019, 10.02 AM IST
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While creating plans for life goals, the commitment of the ULIP provider to stay throughout the life of the policy is critical.

Highlights

  • The multifaceted ULIP allows for flexibility of investment, based on return expectations and risk appetite.
  • ULIPs’ in-built aspect is the life insurance cover.
  • ULIPs coupled with term cover work out cheaper than investing through a mutual fund over the longer term.
By RM Vishakha

In the context of financial instruments, the commonly used phrase “having your cake and eating it too” goes well with ULIPs or Unit-Linked Insurance Plans.

When we think of risks, we only associate with physical risks (death, disability, critical illness). The risks of market volatility and lack of financial discipline are real, significant, and often, unacknowledged. ULIPs allow for management of all these three risks due to the insurance cover, policy lock-in (to prevent impulse spends from funds put aside for long-term needs) and investment options of automatic profit bookings, fund options and fund switching provisions.

The smartphone is perhaps a good anecdotal comparison, to explain how ULIPs extend themselves to multiple objectives of financial planning and risk management. Akin to the smartphone, that incorporates several capabilities into a nifty, handheld device with a built-in camera, utility applications to book cabs, online wallets etc., ULIPs too pack in a host of benefits for its customers.

The multifaceted ULIP allows for flexibility of investment, based on return expectations and risk appetite. One can invest in debt or equity — or simply schedule investments to shift between the two, depending on age or return triggers, as per one’s tailored preferences. ULIPs’ in-built aspect is the life insurance cover. The cover is significantly higher than the invested amount in the initial years, to fit individual life goals. Eventually, with a built-up corpus, charges for the life cover are also exempted, making this a cost-efficient proposition.

ULIPs, while helping one stay on the financial discipline pathway, gives one the option of withdrawal or adding onto the corpus over the longer term, as well. ULIPs have an in-built agility to cater to evolving needs of a customer through enabling switches between asset classes to book returns, scheduling systematic withdrawals to supplement income, or enhancing investments during earning years for a given future goal. This makes the plan a holistic ‘partner for life’, all through one’s financial journey of accumulation, growth and systematic withdrawals. Further, the convenience is unparalleled with cumbersome documentation or tax implications taken out of the picture when one buys a ULIP.

Since there is the aspect of regulated and defined reduction in yield, the value for money element is taken care of. ULIPs coupled with term cover work out cheaper than investing through a mutual fund over the longer term. Besides, an insurance company is inherently wired to maintain its customers’ financial stability, making it one of the more reliable customer investments.

While creating plans for life goals, the commitment of the ULIP provider to stay throughout the life of the policy is critical. ULIPs, by virtue of regulation, do not have any call options. That means the plans will be serviced as a promise made for life.

It won’t be a stretch to refer to the ULIP as the unacknowledged soldier capable of morphing itself to cater to the needs of simplicity, ease, agility, and as a protector against risks.

New Year resolutions revolve around sticking to commitments made towards fulfilling cherished goals and dreams. In tandem with the hard work involved in making a lasting and long-term impact, there is an able and supporting aide in the ULIP, to structure one’s financial plans in a single place while delivering not only value for money, but also peace of mind.

(Author is managing director, IndiaFirst Life Insurance)



(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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