Working of ULIPs

Posted by amrina alshaikh on July 27th, 2018

Life insurance is not just a provision for life coverage nowadays; it has become a tool for investment and savings. People always hunt for the investment tool which gives the best. But the times have changed, and people are looking for both life insurance and investments. Here, ULIPs (Unit Linked Insurance Plans) help you a lot. It is nothing but a regular life insurance plan which allows you to invest in several market-linked products such as several bonds, stocks, funds etc. Read further to know more about the working of a ULIP.

Usually, the premiums paid for the ULIP are further capitalised on several funds. Here, a particular amount from the premiums is kept aside to provide you with the life cover. The rest is invested in the funds to build a sizeable corpus. The best part of a ULIP is that you can choose the best suitable fund considering your future financial needs. Based on the net asset value, the fund value is defined. The net asset value is calculated by deducting the policy charges from the overall fund holdings. At the maturity of the policy, the fund value is paid to the policyholder. If any uncertainty occurs, then higher of either fund value or sum assured is paid to the nominees.

Several funds are available under a ULIP, and you can choose whichever suits best to your needs. Usually, the types of funds are divided into three categories such as-

Equities: Equity market is considered to be aggressive for investment. The risk associated with the investments in equities are high as compared to debts. However, staying invested for long-term offers sizeable corpus at the end of the tenure.

Debts: Debts are conventional funds that come at low risk. Ultimately, the returns gained from debts are also lower as compared to equities.

Balanced Funds: If you are expecting considerably high returns than that of gained from debts, but need to get them at possibly lower risk, balanced funds stand to be the perfect option for you. You can opt for both debts and equities proportionately and anticipate more significant returns.

You have another flexibility to switch between the funds available under a ULIP. You can switch up to a certain extent in a year, and the facility is entirely free. The investment strategy can be built over the period, and the investments can be switched during the tenure. The additional investment can also be made at some additional amount in the premiums.

In case of an emergency, you can withdraw the invested money partially once the lock-in period gets completed. Here, the plan will not be terminated, but the overall fund value will decrease. To conclude, this is how a ULIP works. Understand the nitty-gritty of the plan and opt for the apt, today!