What is ULIP? Understand how Unit Linked Insurance Plans combine investment with life insurance.
Many individuals struggle to comprehend topics like investment and insurance. We desire both objectives to be achieved through a single plan. In fact, investments and insurance can be combined via a Unit Linked Insurance Plan (ULIP).
Who enjoys the complexity of managing separate investments across various policies and schemes? In such scenarios, people seek options offering savings, protection, and appealing returns.
With ULIP, you can invest in equity markets or debt funds while also obtaining insurance coverage. However, like any investment, it offers benefits along with necessary precautions.
What is a ULIP?
ULIP is a life insurance policy that provides the advantages of insurance and investment together.
This product is governed by the IRDAI (Insurance Regulatory and Development Authority of India). A part of the premium you pay goes towards your life insurance coverage.
This ensures financial protection for your family. The rest of the premium is invested in various funds, such as equity, debt, or money market funds.
Premium Distribution
When you make a premium payment, part of it covers your life insurance, while the other portion is put into your selected fund. You can opt for equity, debt, or mixed funds based on your preferences.
Getting Units
The invested sum is converted into units. The worth of each unit depends on its NAV. For instance, if the NAV is ₹100 and you invest ₹40,000, you will receive 400 units.
NAV and Fund Value
NAV fluctuates based on market performance. The overall value of your fund is calculated by multiplying your units by the NAV. If the NAV rises to ₹1,000, your 400 units would then be valued at ₹4,00,000.
In Case of Death
Should the policyholder pass away, the nominee is entitled to the death benefit. This could be the sum assured (insurance amount) or the fund value, whichever is greater, or in some plans, it could be the total of both.
For example, if the insurance coverage is ₹5,00,000 and the fund value is ₹6,00,000, then the beneficiary could receive ₹6,00,000 (the higher of the two) or ₹11,00,000 (the total of both, depending on the policy type).
Maturity Benefit
At the end of the policy term, you will receive the full fund value. For example, if the NAV at maturity is ₹700 and you have 1800 units, you will get ₹12,60,000.
Additional Features of ULIP:
You also have the option to make top-up premiums, which allows you to invest additional funds. You can switch between funds (changing your investments from one fund to another) and make partial withdrawals (taking out some money) after the lock-in duration.
benefits
ULIP offers several advantages that position it as a favorable investment choice:
Combination of Investment and Insurance
The policy integrates life insurance and investment benefits into a single offering, negating the necessity to buy separate products.
Market-linked Returns
Your capital is allocated to the market, particularly in equity funds, which can potentially yield favorable returns over time that may even surpass inflation.
Availability of Flexibility
You have the option to select funds based on your risk tolerance and can frequently switch between different funds. Generally, no capital gains tax is imposed on these transfers.
From this ₹50,000, roughly ₹5,000 may be allocated for insurance coverage and other costs, while the remaining ₹45,000 will be invested in your chosen fund.
What exactly is a ULIP? It’s an intelligent blend of insurance and investment, provided it is selected and monitored with care. Although ULIPs have the potential to grow wealth over time, they also entail expenses and risks that must be evaluated thoroughly. If you are aiming for long-term financial objectives and also require life insurance, a ULIP may be a worthwhile enhancement to your investment strategy — but only after conducting adequate research.
