ULIP Planning Made Easy: Use a ULIP Calculator to Compare Investment Options

With rising education and medical costs and surging real estate prices, individuals are left with no choice but to invest their money wisely. Only via investments can they buy their dream home, fund their child’s education, and fulfill other financial goals. At the same time, there needs to be a contingency plan. After all, anybody would want to ensure financial support for dependents in the event of their sudden demise. To fulfill both requirements, opting for a Unit Linked Insurance Plan or ULIP can be a wise move.

Does the term sound unfamiliar? There is no reason to worry; you are in the right place. Here, we will explain how this financial product works and also explain how you can use a ULIP calculator to choose a product that is best-suited to your requirements.

Introduced in 1971, a Unit Linked Insurance Plan or ULIP is a popular financial product, especially for individuals who are seeking the combined benefit of life insurance and investment. Indeed, this product allows one to invest in different financial instruments like stocks, bonds, etc., while ensuring the financial security of their loved ones. You can purchase a ULIP plan from a life insurance company by paying a premium, like in the case of traditional insurance plans. 

A part of the premium goes toward life insurance, while the remaining portion gets invested by fund managers in different financial instruments. While you cannot choose the specific financial instruments to invest in, you get to decide the type of fund in which you wish to allocate funds. Note that you can choose to invest in equity, debt, or hybrid funds based on your financial goals and risk appetite. Also, one can switch funds on the basis of the market scenario and requirements. Also, individuals must keep in mind that a ULIP has a 5-year lock-in period, giving significant time for investments to increase in value. That said, staying invested for a longer period can improve the chances of generating higher returns. 

One can understand the need for ULIP investment planning by going through the following pointers:

• Lock-In Period: As noted above, a ULIP always comes with a 5-year lock-in period. During this period, one needs to keep paying the premiums on time to keep their plan active. Without proper planning, one may fail to make premium payments on time. Also, according to experts, these financial products are best suited for long investment horizons of more than 10 years. Hence, proper planning is essential to make sure that the financial goal timeline is in line with the ULIP duration.
• Costs: ULIPs come with various costs, mortality charges, fund management charges, premium allocation charges, etc. Hence, proper ULIP planning is vital to ensure the selection of a plan with low associated costs and to avoid unnecessary expenses.
• Goal-Setting: Generally, people allocate money to ULIPs to fulfill specific financial goals. In that regard, proper planning is necessary to ensure that the expectations from the ULIP are realistic, particularly in terms of returns.  

For effective planning, using a ULIP calculator can be extremely useful. If you want to know how you can benefit from this tool, which is mostly available online for free, you can check out the next section. 

A ULIP calculator is an online tool, as noted above. It helps one compute the estimated returns for a ULIP. This tool computes the expected returns on the basis of the desired return rate, tenure, and amount of investment. Given the capabilities of the calculator, one can use it to compare ULIP plans and get a clear picture of a plan’s performance over a certain period. Thus, simply put, it makes the process of planning one’s financial future straightforward. Through this tool, one can assess how the investment can grow with time, considering the performance of the underlying funds and market fluctuations. 

To compare ULIP plans provided by different insurers, individuals can input the expected returns of different plans and adjust other parameters like tenure according to their requirements. Adjusting the exact parameters, one can assess and select a plan that is in line with their financial goals and risk appetite. 

Let us give an example to help you understand better. Suppose you enter the amount you wish to invest as Rs. 1000 and enter the following details:

• Tenure: 10 years 
• Stay Invested For: 10 years 
• Expected Return Rate: 10%. 

In this case, the expected returns amount to Rs. 10.1 lakh. Now, keep all parameters, except the rate of return, the same for another ULIP. Suppose it is 15%. The tool will show estimated returns worth 14.3 lakh. By comparing the returns, one will choose the second option. 

Note that ULIP calculators also enable individuals to explore such plans’ flexibility. Indeed, people can evaluate the effect of switching between funds and assess the possible returns on the basis of historical data concerning performance. 

The key ULIP features one must consider when buying a plan are as follows: 

• Type of Investments: A key ULIP benefit is that individuals can get indirect exposure to investments with varying risk profiles. One can select from a range of funds on the basis of their financial goals and risk-bearing capacity. 
• Customizations: A key customization option is the premium payment frequency, which can be annually, quarterly, half-yearly, or monthly. Make sure to choose an option on the basis of your convenience. Also, another way to customize is by adding riders, which are add-ons that provide coverage for specific situations. 
• Partial Withdrawals: A noteworthy ULIP benefit is partial withdrawal, which can be advantageous to fulfill financial requirements. That said, one must know about the terms and conditions associated with withdrawals concerning ULIPs. This is because some plans come with minimum withdrawal limits or restrictions. 
• Loyalty Additions: A lot of ULIPs provide loyalty additions in the form of a bonus to stay invested for a longer period. Typically, these additions enhance the fund value at certain milestones. Thus, these additions can improve one’s returns over time. 

Unlike the various investment options available in the market, what makes ULIP stand out is its hybrid nature. Indeed, by allocating funds to just one financial product, one can get the benefits of insurance as well as investment. That said, one must remember that ULIPs have a 5-year lock-in period, which makes them a suitable option for long-term investors. If one already has a life insurance policy and has a short or medium-term investment horizon, buying a ULIP may not be ideal. Having said that, unlike many investment options, ULIP offers tax benefits, which can be a significant benefit worth considering for individuals. 

As one can observe, there are some pros and cons, considering individuals have different requirements in terms of financial goals and risk appetite. Hence, it becomes vital to weigh the pros and cons and allocate funds to a financial product or investment based on a clear strategy that is in line with their goals, investment time horizon, and risk appetite. 

Digitalization has proved to be a game-changer with regard to how an individual accesses and manages investments or financial products, including ULIPs. Indeed, the user-friendly mobile applications and online portals developed by insurers enable one to plan and track their investments in real-time. Moreover, people can even switch funds at their convenience based on the market scenario. 

This digitalization enhances transparency between financial services providers and their clients and empowers people to make better decisions. For instance, let us consider the ULIP calculator. This tool has made it simple for people to calculate the expected returns and align investment choices with financial goals. Moreover, with new innovations on the horizon, there is no doubt that digital planning via tools like these is the future. 

A ULIP calculator has become a go-to tool for individuals looking to engage in ULIP planning. With this online tool, one can compare different plans and decide which one to purchase. That said, before buying such products, one must make sure to consider various key aspects like their financial goals and investment time horizon. Moreover, they must check the pros and cons of ULIPs and figure out whether it is the right option for them at all.