Unit Linked Insurance Plan (ULIP)

Posted by Ritika Shah on August 11th, 2016

A Unit Linked Insurance Plan (ULIP) is a life insurance plan, which offers the dual benefits of protection as well as savings. The protection component is the insurance cover while the savings component is that portion of the premium that is invested by the insurance company on your behalf in a fund(s) of your choice. The first one is called Death Benefit and the second one, Maturity Benefit.

ULIPs help you fulfill your long term financial goals. They cultivate a disciplined approach to financial planning as it requires you to make investments at regular intervals. Being long term plans, they also protect your investment from short term market fluctuations due to rupee cost averaging.

ULIPs have the added advantage of flexibility and transparency. Investment portfolios are disclosed on a monthly basis and Fund's NAVs [1] are disclosed on a daily basis. Most ULIPs offer you a range of fund options across different asset classes to meet your needs based on your individual requirements. They also provide you the flexibility to manage your investment based on the changing market scenario and your risk appetite.

Investment in ULIPs is also eligible for tax deduction of Rs. 1,00,000 under Section 80(C) of Income Tax Act as per current tax laws.

Benefits

A ULIP is essentially a long term financial planning tool and offers you numerous benefits such as -

An insurance cover that is available from the start of the investing period.

Lower fund management charges that result in better returns over the long term.

Flexibility in asset allocation that allows you to maximize returns through various financial cycles and also provides you the option to adjust the product based on your changing risk profile.

Installs a discipline of investing that ensures you are able to meet your long term goals.

Provides the option of further enhancing the product through riders such as the Term Rider, Waiver of Premium Rider etc., besides offering value additions such as loans, portability etc.

How does a ULIP works for you?

Before buying a ULIP, it is important for you to understand how it works.

A ULIP has basically two components – a protection component and a savings component. Based on the amount you want to invest and the life cover you choose, we deduct a certain portion of your premium. This is known as the Premium Allocation Charge and varies from product to product. The rest of your premium is invested in the funds you choose across different asset classes.

Mortality Charges and Policy Administration Charges are deducted on a periodic basis by cancellation of units, whereas your Fund Management Charges are adjusted from the NAV [1] on a daily basis.

An important feature of your ULIP is that it allows you to control your investment. You can decide the amount to be invested across different asset classes and may switch between funds or re-direct your future premiums in different funds based on the changes in your risk profile and market conditions.

You may please note however, the returns in ULIPs are market linked and are not guaranteed. You may spend some time with your financial advisor to understand your appetite for risk and choose a fund that is suitable to your profile. Please ask for the benefit illustration that indicates estimated returns, understand the assumptions and seek clarifications if you need to know more. Depending on the market conditions and changes in your risk profile, you may shift from one fund to other to optimize returns.

Your total accumulated savings net of the applicable charges, invested in the market along with the earned returns, i.e., the fund value, is paid to you at the end of the plan term.

To know more about ULIP.

Source: http://youknowitbaby.com/article/14402/unit_linked_insurance_plan_ulip.html