Buying insurance is often considered a tricky process, with a multitude of available options. These options can often confuse a new buyer into buying a policy that may not be right. However, understanding the policy terms thoroughly can help to determine the basis for choosing a specific plan. Moreover, clearing all your doubts or inhibitions about the policy coverage can aid in selecting a robust coverage that is useful in the long run. Insurance calculators are a nifty tool that supports this process. 

While there are various life insurance plans, let’s understand a Unit Linked Insurance Policy or ULIP in this article. 

What are ULIPs?

ULIPs are insurance policies that offer not just life insurance coverage, but also investment in the same premium payment. The premium you pay is divided into two parts — one, for life insurance coverage, and the other, for investment. For this reason, a ULIP policy is also known as an investment-cum-insurance plan. 

The investment through ULIPs is made in market-linked securities in various funds. ULIP benefits include protection and wealth creation in single premium payment, and hence, are a nifty investment avenue for policyholders seeking both, insurance and wealth accumulation. In addition, ULIP benefits include flexibility in switching to a different fund to stay in line with your life goals.

What is a ULIP calculator?

A ULIP calculator is a tool that helps the policyholders calculate the estimated amount of premium and the amount of returns which they can expect. It takes into account various considerations like the tenure, premiums, age, and rate of return, to provide an expected return on the investment. 

Based on the above calculations, you, a policyholder, can get an estimate of how much premium would be required to pay for the specified goal of wealth creation and accordingly decide which fund to invest in. 

ULIP calculator: How to use one?

As an insurance buyer, you need to keep in mind factors like the frequency of paying premiums, the type of fund where the investment is made, the amount of money invested in these funds, and the expected rate of return. These details help to determine the precise value of the investment in each fund. In addition, it also aids in comparing the several plans that are offered by the insurance company. 

Here’s a step-by-step process of using a ULIP calculator:

1. Locating the ULIP calculator on the insurance company’s website is the first step.
2. Start with deciding the periodicity of your investment. It can be either monthly, quarterly, half-yearly or even annually. Based on what suits you, you can opt for a convenient premium payment. 
3. Now, select the policy tenure for which the investment shall be made. Here, you need to remember that ULIPs are locked in for five years from its start. Hence, the minimum investment tenure shall be five years. Experts, however, recommend that you invest for longer periods to meet your investment objectives. 
4. In the next step, decide how much premium you want to allocate towards investment and the insurance aspect of your policy. 
5. Now, decide which funds to invest in, based on your risk appetite. Equity funds, debt funds, balanced funds, liquid funds, and cash funds are some alternatives to choose from. You can either select any one fund or diversify your investment across different funds within the policy. This way, it is also possible to hedge the risk across various funds. 

Checking the past performance (by tracking the NAV) is an indicator to determine the fund’s profitability and accordingly decide on a suitable one. 

1. Lastly, personal details are required, like age, gender, and lifestyle preferences like smoking, to know the exact amount of investment that shall be accumulated at the end of the ULIP tenure. 

What are the benefits of using a ULIP calculator? 

• Since a ULIP calculator is available online and for free, it is a hassle-free experience to calculate the premium that you would require to invest for meeting your financial goal. 
• A ULIP calculator simplifies the complex process of factoring several elements and provides the amount that you need to invest to meet your future financial objectives. 
• With a user-friendly interface, amending your investment by way of fund-switching is a seamless process. It also aids in making an informed choice for goal-based investing. 

Now that the elaborate process of using a ULIP calculator is clear, make sure to use it before your next investment or fund switch to ensure that the right funds are selected.