A ULIP is an ideal choice for policyholders looking for an element of financial planning beyond the life cover. A ULIP plan offers the dual benefit of insurance and investment, by using your premiums for life coverage as well as to invest in diverse financial securities. You can choose from the options of equity funds, debt funds, or a combination of both. Debt funds are suitable for those who are risk-averse, while equity funds meet the needs of high-risk appetite individuals. Oftentimes, policyholders are not sure as to how much they should invest, and for how long in a certain asset class, to reach a specific goal amount with their ULIP plan. This is where a ULIP calculator can be of great help.
What is a ULIP calculator?
The ULIP calculator is an online tool that helps you understand the amount you should be investing today to reach a particular goal amount at a certain time. The calculator asks you to enter various information, based on which it estimates the amount. One should enter data in the ULIP calculator, based on the return they wish to acquire and their budget. Whether you have already used the calculator or are planning to use it the first time, it is important to be aware of certain things before going ahead.
What to consider while using a ULIP calculator
- The information you enter can be tweaked for your needs
One of the best parts of using a ULIP calculator is that the information in it can be adjusted as per your needs. This allows you to curate different scenarios and understand the amount you will have to incur for each. Usually, a calculator requires the following information:
- Your goal amount, i.e., the amount you wish to obtain by a particular time
- The tenure, i.e., the duration you wish to invest the money for
- The types of ULIP funds you plan to invest in, such as equity funds or debt funds
- The expected rate of return, which refers to the usual fund performance of the ULIP plan you want to invest in
As you tweak around the information, the tool provides you with a new estimated premium based on the new information. For instance, increasing the goal amount will raise the premium estimate and vice versa.
- The calculator aids in selecting the right fund option
As mentioned earlier, the ULIP calculator also asks you to enter how much you would want to invest in risk-free and market-linked instruments. The former usually includes debt funds while the latter involves investing in stocks. Within these types of ULIP plans, when you invest in market-linked instruments, you receive higher returns as compared to the returns from risk-free returns. Therefore, the amount estimated by the calculator is lower when you choose a larger percentage of market-linked investment and higher when you mainly select risk-free instruments, even if the other variables are constant.
This aspect can help you understand which would be the more suitable fund type or a fund combination for you, as per your risk appetite and your profit objectives.
- The estimated amount is an estimate only
As with most online calculators, one should know that the ULIP calculator also provides only an estimate. It is an online tool programmed to give you a certain figure based on the variables entered. Its objective is to provide you with an estimate so that you can curate your ULIP plan by keeping certain figures in mind. The actual amount that you will have to invest may depend on several factors, such as the insurance provider, the market conditions and the interest rates, and so on.
Furthermore, the investment amount estimated by the calculator does not take into account the mortality charge required for life insurance coverage. So, the actual premium may vary on other factors too.
Benefits of a ULIP calculator
- A ULIP calculator is free to use. It does not require any fee or charge. Beware of sites that ask you to provide any kind of charge to use a ULIP calculator.
- A ULIP calculator estimates the return you can expect when you invest a certain amount, thus helping you to plan out your long-term as well as short-term goals.
- ULIP calculators are extremely easy to use. You do not have to be a tech-savvy individual to know how to use it. All you have to do is enter the variables and tweak them around if you wish, and the amount will appear and change as per the updated variables.