Making an investment decision is not easy. It needs market research and knowledge about different products. Based on your financial goals, you need to consider all the available investment products and make a wise investment decision. If you are planning to purchase a Unit-Linked Insurance Plan (ULIP), you need to understand the policy and consider the five Ps, which are ‘Parent’, ‘People’, ‘Process’, ‘Price’, and ‘Performance’. These five elements are crucial for judging any investment policy. Every element plays an important role in the way the policy works for you. If you go in depth about how consumers judge a policy, there are only two factors that matter- one is parent and the other is performance.

Investors tend to make a decision based on the returns generated by the plan and the price associated with the plan. However, other factors also need to be looked into when making an investment decision.

  • Parent

Parent means the foundation and if it is strong, all the other Ps will be taken care of. All the Ps work in accord to ensure the performance of a ULIP. For every investor, it is important to consider the brand they invest in. This is where the P for ‘Parent’ factor comes in. The brand means the company you are investing in and its financial health and stability. It is ideally measured by the solvency ratio, which shows whether the company will be able to manage the liabilities in case of a critical financial situation. When you look at the solvency ratio of the company on its financial report, you should be able to understand the company’s financial health, and how the same has improved or deteriorated over the years.

It is believed that the ratio should be a minimum of 150% while many companies have a higher ratio. This only shows their strong financial health. In addition, it is best to consider the claim settlement process of the company. This can be measured by the ratio of claim settlement. You can easily find the ratio when you compare different plans online. It is of utmost importance that you choose an insurance company, which has a high claim settlement ratio.

  • People

Any organization that is providing long-term solutions to the customers’ needs to invest into their people and the people should have the ability to think for the long-term. This stands perfectly true in case of ULIPs. This is why companies need to have a professional and experienced team, which has witnessed different market cycles and can reduce the risk in case of a downward cycle while increasing the returns in case of an upward cycle.

  • Process

Process forms an integral part of the ULIP. Most customers are not aware of the philosophy of investment and the process of stock selection. They do not know how the fund manager makes the investment decisions and this will reflect in the history of the organization. If there is a company, which is only focused on the short-term performance, it will take various risks in the portfolio during the upward cycle of the market and if the company is into long-term investment and growth, it will keep your goals in mind and manage the portfolio. It is not driven by the movements of the market.

  • Price

For any investor, price is a very important pillar. There are different charges associated with a ULIP and you need to consider them before making an investment. These include premium allocation charges, fund management costs, mortality costs, and administration charges. Many people believe that an investment in ULIP is costly but the regulations have reduced the expenses and it has become a value investment option. You can compare the premiums of the best ULIP plans in India and then make a decision about the investment in ULIP.

  • Performance

Another important pillar is performance. ULIPs serve different purposes; they help meet your long-term goals and provide you a life insurance cover. This is why you need to check the performance of the ULIP in the long term. This can be done by comparing the returns of different funds over a period and checking the performance when the market is in the bullish phase, as well as, the bearish phase.

For any investor, price and performance are crucial and they should be considered as a priority. Your investment tenure and criteria will also help you in making a decision. When making a comparison of the performance of the fund, keep your risk appetite in mind. There are different types of ULIPs you can choose from. These include equity, debt, and balanced.  You need to pick one based on your long-term financial goals. It is important for every individual to invest in a ULIP plan and you can choose an efficient ULIP policy by simply comparing the premium amount and the insured amount online. The entire process of making an investment has become quick and convenient. You will not have to speak to an agent for the same as you can buy an insurance policy online, that too without any charges. Bajaj Allianz Life Insurance offers a number of ULIP plans that offer comprehensive coverage and are an ideal addition to one’s portfolio. The policy also has a tax benefit under Section 80C of the Income Tax Act, 1961.

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].