All About Unit Linked Insurance Plans

By | January 12, 2016

Unit Linked Insurance Plans

What are Unit Linked Insurance Plans?

A Unit Linked Insurance Plan is an insurance plan that offers you a life cover and is also an investment.

How does a ULIP work?

In a Unit Linked Insurance Plan, part of the premium that you pay goes towards mortality charges, similar to regular insurance policies. Here’s how it is different. The remainder of the premium is invested for you by the insurance company.

Personalized Investments

You can choose the investment units and the distribution of funds to match your needs. Don’t fancy high-risk investments? Take a deep breath. You can vary the levels of risk for your investments.

Additional Reading: ULIPs or Mutual Funds: Which is the better option?

What are my options?

There are four different fund options for Unit Linked Insurance Plans. Take your pick.

  • Equity Fund

Equity Funds are a high-risk investment options that distribute funds in shares. You can expect high returns from equity funds. Looking for wealth creation over the  long term? An Equity Fund linked policy is ideal for you.

  • Balanced Fund  

A Balanced Fund distributes the premium between high-risk equity units and fixed interest units. Balanced Funds are a medium risk investment option because the risk is balanced between the equity units and the lower risk fixed interest units.

  • Debt Fund

A Debt Fund invests the premium that you pay into government securities, corporate bonds and various other fixed income investments. As a result, Debt Funds have a medium-risk level.

  • Money Market Fund

A Money Market Fund is a very low-risk investment option. In a Secure Fund ULIP, your funds are invested in cash and bank deposits. The expected returns are therefore relatively low.

If you are looking at ways to grow your money, a Unit Linked Insurance Plan may be a good investment for you.

You must remember that as ULIPs are market-linked investment products, you must be prepared to stay invested over a long term. The benefits you will get, accumulate during the duration of the investment.

But wait, if you’re still undecided about investing in Unit Linked Insurance Plans, we’ll help clear the confusion.

Additional Reading: Benefits of Unit Linked Insurance Plans

Demystifying Unit Linked Insurance Plans

We’ll banish some popular myths about Unit Linked Insurance Plans for you.

  • Unit Linked Insurance Plans are costly in comparison to other investment products.

Unit Linked Insurance Plans were costly some years ago because of the high premium and fund management charges. In recent years, ULIPs have seen several changes with respect to the charges and fund management fees.  and there has been a decrease in costs. You can get Unit Linked Insurance Plans that are competitively priced.

  • ULIPs are invested only in equity markets. They are risky.

Don’t be so hasty to dismiss Unit Linked Insurance Plans. With a ULIP you can decide the level of risk for your investments. There are different types of funds that you can choose from. You can also change funds to suit your evolving lifestyle.

  • Unit Linked Insurance Plans offer extraordinary returns.

Remember, a ULIP is not only an investment product. A ULIP gives you an insurance as well as investment options. A part of the premium is allocated to the life cover and other fees. The remaining premium amount is invested.

  • Life cover decreases with market volatility.

Many investors have the wrong idea that, because ULIPs are linked to the equity market, the sum assured amount would decrease if the market dips. Not true. Despite market volatility, your life cover will remain unaffected. In case of the policyholder’s demise, a ULIP pays the entire life cover or the fund value, whichever is higher.

  • You cannot surrender the policy before maturity.

With a Unit Linked Insurance Plan, you  have theoption of surrendering after the completion of the lock-in period which is usually 3-5 years from the date of the policy. On terminating the policy, you will get the fund value after surrender charges are deducted.

Some ULIPs give you the option of continuing the policy to enjoy the benefit of life cover, even after you withdraw a major portion of the invested amount. You can also choose to discontinue premium payments after the lock-in period of the policy.

So are there any more reasons why you shouldn’t get a Unit Linked Insurance Plan?

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