The ULIP (Unit-linked Insurance Plan) is a type of insurance plan where there are 2 components. The premium is fixed in such a way that one component goes into paying for the term plan of the insurance for a fixed number of years while the UNIT linked component goes into building wealth for the policyholder. ULIP insurance has a dual purpose; it builds wealth for the investor by combining the growing fund as the years pass, and the combined funds from the premiums of all the investors are used to buy stocks, bonds and even debt funds or debentures, depending on stock market volatility. On the other hand, the insurance component provides mortality security in the form of a sum assured amount that is paid to the nominee of the investor in case the investor passes away. Modifications have been made to the insurance component, and some ULIP insurance companies are paying for 64 different types of critical illnesses.
A ULIP plan is basically a long term investment, and there are benefits in both components of the ULIP insurance over a span of at least 25 to 30 years. There is a ULIP calculator on the sites of almost all companies selling ULIP insurance that uses a simple calculation to give investors an idea of the premium they would be required to pay for specific insurance plans. This ULIP calculator runs on an interactive program and asks for investor details.
The ULIP calculator is more than a simple premium calculator. This calculator provides details of funds so that investors can actually calculate the returns they will be likely to get over a period of time.
The ULIP calculators of different companies work in slightly different ways. Some ULIP companies mention the different types of funds which include
● Accelerator funds which are high risk
● Debt funds which are low risk
● Opportunity funds which are high risk
● Stable funds, which are moderate risk
● Blue-chip equity funds which are high risk
● Secure Funds which are low risk
In the ULIP calculator, investors can use percentages of their amount for investment in these funds to see how their funds grow over a period of 3, 5 and 7 years.
Detailed procedure of using the ULIP calculator
To start at the beginning, investors can go to the site of an insurance company they are familiar with and those that offer ULIP plans.
The first stage is to log into the ULIP calculator. Unlike simple interest or premium calculators, where people can use different permutations to calculate, the ULIP calculators require investors to login and create a profile.
The second stage is to decide on the amount of investment. It is recommended that investors begin with the minimum amount of Rs 1500 per month and then fill in details such as how they would like to pay the premium. This payment can be done quarterly, annually or even monthly.
The second step is to decide the tenure of the ULIP insurance. The ULIP calculator now has the amount and the term.
The next step will require the investor to decide how much of the decided premium will be used for investment in ULIP. The ULIP calculator will need to know the insurance component and the investment component for it to calculate the projected returns to the investor.
The fourth step will require the investor to mention the lock-in period. Most ULIP insurance plans have a minimum 5 year lock-in period. Most financial experts advise a longer lock-in period, and equity-based investment schemes provide good returns over a period of at least 25 to 35 years.
The fifth step is the most crucial, and investors will need to specify the funds in which they would like their accumulated funds to be invested in. There are 6 types of funds, from low-risk debt funds to high-risk blue-chip funds, opportunity funds, and accelerator funds. Investors can specify the percentage of their investment fund and the specific fund. For example, an investor can specify that he or she would prefer to invest 15 per cent in debt funds, 20 per cent in blue-chip funds, 25 per cent in accelerator funds, 25 per cent in stable funds and 15 per cent in secure funds. Investors need to check the performance of these funds for the last five years and observe a favourable growth trend in order to make this decision.
Once all these inputs have been provided, the ULIP calculator will provide the projected returns for the decided amount, the tenure, the lock-in period, and the distribution pattern of the funds over the different funds available.
Repeated practice is a good way to get a good idea of how the ULIP calculator works and will help investors make these crucial decisions when the time comes to make the actual investment. This is like playing a game to get good practice.
A good guide
There are several advantages of using the ULIP calculator
There are facilities for multiple use with different amounts and different fund distribution patterns. Investors learn a lot about different funds, the risk factors, and how much they can impact the returns to the investor.
Transparency of the ULIP calculator and the database gives investors realistic return projections, basically teaching them to make the best investment decisions.
Several ULIP calculators also provide different ULIP insurance plans and offer investors to use the calculator to get the most out of individual plans. Investors can use different permutations and combinations to get a fair idea of how they can maximise their returns.
A great opportunity
The ULIP calculator is a very good way for investors to try out different combinations to see which gives them the best returns. They can verify experts' claims about long investment tenures and use a judicial combination of low, moderate and high-risk funds to get both a factor of safety and the benefits of periodically strong markets. The law of averages helps investors always get good returns in the long term.
