Investment in Unit Linked Insurance Plans in India

Posted by aarti singh on September 1st, 2016

About Insurance Products: Insurance Products may be mainly classified as

(I) Traditional Products: These are just like fixed Insurance & Income products, I.e., whatever you need to invest and the returns you would receive are predetermined / fixed. At maturity (end of the policy period) you will receive the specified maturity amount. In case of any unfortunate happening during the period of the Policy, your family (nominated person/s) will receive the 'Sum Assured' (Insured Amount), and the policy will be terminated.

These products invest into very low risk investments throughout their term (They should do so and have to confirm the Govt. and Insurance Regulatory and Development Authority rules). The point here is these products are sufficient only for the predefined Insurance needs range only. The returns on these products cannot meet the future requirements of the returns to meet the inflation.

(ii) Unit Linked Products: These products are just like mutual funds and carry investments into a broad spectrum of investments ranging from 'High' to 'Medium' to 'Low' risks (Funds). These Funds are managed by high profile, expert organisations called 'Fund Managers'.

The investments made into these products are invested as to meet your Insurance and a major portion is invested for your Investment needs. Of course, obviously there will be some charges for fund allocation and fund management which are quite negligible when compared to the returns and mainly the insurance cover.

WHY EITHER MUTUAL FUNDS OR UNIT LINKED INSURANCE PLANS?: The answer lies in the financial view of 'RETURNS FROM INVESTMENTS'. The only investments whose returns get along proportionately enough with the ever growing inflation rate are Real Property and then it's 'EQUITY'.

Yes, you can invest in real property. But, then the investment risk needs to be diversified, I.e., investing in various assets and they also need to respond to your various types of needs currently and in the future.

WHY 'UNIT LINKED INSURANCE PLANS'? WHY NOT MUTUAL FUNDS?: Certainly one should invest into mutual funds as they help to diversify the investment risk. Currently in India they are very interesting as Govt. has restricted the levy of entry fees.

But, then Mutual Funds cannot cater for the (I) Insurance needs. (ii) The Mutual Funds can be liquidated whenever the customer thinks the returns look enough (except those Mutual Funds with a Lock In period of 3 to 5 years and have an IT exemption. But, then 5 years is not a much longer period.) and thus reducing the capital base in an irregular form of risk. The point here is even though the Mutual Funds give very good returns in a long term, the investments have to be made (by the Fund Manager) keeping in the view the liquidity required for a shorter period.

Ulip Insurance Plans address both the Insurance and Investment needs efficiently. Currently, in India, once you take a policy, you can surrender or liquidate or partially withdraw only after the completion of 5 years. They provide insurance and invest into Mutual Funds for considerably larger periods and hence have unbeatable larger capitals in the market. The large capital enables highly efficient and highly qualified Fund management due to negligible transaction costs as compared to the capital.


aarti singh

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aarti singh
Joined: August 29th, 2016
Articles Posted: 12

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