Investors who have invested in ULIP (Unit Linked Insurance Policy) have an option of choosing units from income, balanced and equity units. (some give a few more customised options too!)
This choice is given at the time of applying for the plan. Options can also be changed during the lifetime of the policy with most of the insurers.
1) Which option is best?
Since ULIPS are all supposed to be long term investments, 100% allocation to Equity units( growth option) should be the obvious choice. Even if you are an extremely conservative person , you should opt for at least 50%of your money to be invested in equity.
2) Most of the insurers give a 'Premium Redirection' and 'Switch' option. What is the difference between the two?
' Premium Redirection' can be used by the policy holder to divert all further premiums in a different proportion into income/balanced /growth than what he has already opted for. For example If I had opted to invest 100% of my premium into balanced units and I choose to buy only 100% equity units from further premium , I can give a premium redirection instruction.
'Switch' is switching of existing units in a policy from equity to balanced, income to equity,etc.
3) How often should I keep switching to units in a policy?
If anyone can predict the highs and lows of a market , he can do a great switching job. But no one can do this perfectly. So, it is always better to stay with your option unless there is a major change in economic scenarios or change in your risk appetite. Frequent switching wouldn't help you grow your money faster( unless you are extremely lucky!!) (Time or Timing ?? Market )
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