Insurance is increasingly purchased online because of the convenience and cost efficiency. Most companies first offered motor and health insurance plans online for customers. Today, insurers offer several other products including unit-linked insurance plans (ULIPs).
Generally, ULIPs are considered to be a complex financial product. This insurance plan combines life cover along with investment to deliver returns. Several insurers are now offering this product online to encourage more investors to invest in ULIPs.
Should you purchase ULIPs online?
One advantage that is greatly advertised is that a ULIP policy is cheaper online when compared to its offline version. This is because commissions for intermediaries like agents and brokers are eliminated when you make an online purchase. Therefore, there are no premium allocation charges, which leave a higher investible surplus. As a result, you are able to accumulate a higher corpus at the time of maturity.
ULIPs also come in with a minimum lock-in period of five years. Moreover, the premium paid on the ULIP is eligible for tax benefits under section 80C of the Income Tax Act. The maturity or death benefits are tax deductible under section 10(10D) of the Income Tax Act, 1961.
Being aware is an important thing to make an informed decision. Before you decide to purchase ULIP insurance online, here are five factors you must consider:
- Determine your risk profile
The returns on your ULIP investment are based on the performance of the underlying securities such as equities and debt. Therefore, there is an inherent risk associated with ULIPs. You need to regularly monitor the performance of these market securities to make effective decisions to minimize your risks. It is recommended you determine your risk profile before choosing the most appropriate plan.
You may choose equity fund if you are willing to accept higher risks to earn potentially larger returns. If you are risk-averse, you may opt for a debt fund. You may also invest in hybrid plans that invest between 40% to 60% of the corpus in equities and the balance is invested in debt instruments.
- ULIP charges
The ULIP charges reduce the effective returns you earn on your investment. Therefore, it is important to know these before making an investment decision. Some of the common charges include fund management fees, administrative costs, surrender costs, and switching charges.
Initially, all the aforementioned charges were high. However, the Insurance Regulatory and Development Regulatory Authority (IRDA) has rationalized such charges and capped the maximum limits that may be levied by the insurance companies. Nonetheless, it is advisable you check the various charges before making an investment. It is crucial because it will affect the corpus that you are able to accumulate at the time of maturity.
- Switching options
An important and unique advantage of ULIPs is the switching options offered by the insurers. With this feature, you are able to switch your investment from one fund to another, based on the changing market conditions. You may also want to switch from aggressive equity funds to debt funds, as you near your investment goals and financial objectives, to safeguard your corpus from market fluctuations.
Most insurers allow you to make such switches during the year. However, they may limit the maximum number of free switches during a year. It is recommended you check the costs for additional switches and the ease of switching before you invest in a ULIP.
- Investment philosophy
Every ULIP will follow a particular investment pattern and strategy based on its inherent philosophy. You may not be aware of this along with additional parameters such as how the instruments are selected in the portfolio and the investment strategy adopted by the professional fund managers. Plans that are focused on short-term returns will often invest in riskier products, especially during a market upturn. On the other hand, long-term funds will invest the money in longer duration instruments to help you achieve your financial objectives.
It is recommended you check the past history and performance of different funds before you make an investment decision. This information is easily available online. It is advisable you check the fund performance for the last five to ten years, to determine the returns during market upturns and downturns, to make an informed investment decision.
- Exclusions and limitations
The returns on your ULIP investment are not guaranteed because these are related to the performance of the underlying securities. Therefore, it is very crucial that you clearly understand the exclusions and limitations in case of your demise or permanent disability during the policy term. The insurance coverage must be sufficient to ensure the financial security of your family members in case of your demise or your inability to work due to permanent disability.
Buying a ULIP online is simple, quick, and convenient. You need to provide your details and send soft copies of the required documents such as address proof, income and identity proof, and age verification details. When you buy online, you eliminate the possibility of errors made by an agent or a broker. Moreover, if you are unable to complete the process, you may seek assistance from an experienced adviser, who will guide you through the entire online procedure.
Buying ULIPs online is recommended only after you have evaluated your risk profile and financial objectives. You must thoroughly evaluate different products before you buy one online. It is also recommended you know your investment horizon to choose the right ULIP plan.
Invest in an online ULIP today and secure your financial future.