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A rupee saved is no more a rupee earned. Thanks to inflation, in a few years, the rupee will be worth a lot less than its original value. Today, one simply cannot afford to ignore the corrosive effect that rising prices can have on the value of your savings. The impact over the long-term can be disastrous. Think of the consequences if one were to save a pile of pennies for retirement-further in the coming golden years you would see their value reduce unless one is able to grow the kitty at a rate that beats the reducing power of inflation.

The idea that an insurance policy can, in the event something untoward happens to you, pay a sum of money to your loved ones is not a new one. The key proposition of insurance is the value of being able to protect yourself against exigencies for a longer period of time in the future. And hence the key link between insurance and investing. All forms of long-term insurance involve some degree of investment to create viable sums of money that will be available to you in the future.

While investment-linked products have been available for many years in different forms, unit-linked life insurance, as we know it gained popularity about 7-8 years ago in the Indian market. The fact remains that such products still represent a new generation of life insurance plans where the value of the policy is linked to the investment performance of a fund, and the choice of the investment fund is actually taken by you as the policyholder depending on your circumstances.

The most important point to consider here is the evaluation of your financial circumstances and your requirements. Before buying any life insurance product, it is important that you review your financial plan/conduct a financial review that helps clarify your financial needs and also helps you understand your priorities and your risk appetite before making the investment and insurance decision.

Unit-linked insurance provides the policyholder with an avenue to reach out to a basket of investments that are managed by investment professionals trained to seek out good opportunities. It gives you access to assets that you may not be able to reach with the budget you have and provides you with a mechanism to spread your eggs into different baskets.

For instance, if you have Rs 25,000 in hand and wish to do direct investment, it may not be very cost-effective to split up this amount into equity, balanced and debt funds. However, you can do this with your unit-linked plan. Additionally, some unit-linked products offer guaranteed funds as well which you could invest in depending on your risk appetite and specific requirements.

Ulips allow the customer's limited capital to spread in different portfolios. Policyholders have a choice of different funds based on their risk tolerance level and return expectation. The flexibility of insurance coverage helps to ensure that your family is well protected and insurance level is tailored as per your requirement.

Although Ulips are good at all stages in life, they work best for those in the 25-45 age group, where the policyholder can give their investment a good 10-25 years to grow. So, when starting off one can look for a high equity allocation, which can be tapered as one ages to increase the allocation to debt as the policy approaches maturity to secure the fund value. Using the rupee cost averaging method, through regular premium payments, you could actually acquire more units with the same fixed amount of monthly investment and follow a disciplined process of investment. Overall, investment-linked products offer good opportunity for wealth accumulation with calculated risk over a medium or long-term period.

Source : www.mydigitalfc.com