All About ULIP and How It Works
If you want your future to be insured while at the same time have wealth gain as one of your investment goals, a Unit Linked Insurance Plan (ULIP) is possibly the best choice. Such plans allow investors to get both insurance cover and wealth creation with a single investment. Despite its multifaceted character, you’ll find these plans are very easy to invest in and offer a lot of flexibility. It’s so simple that you can even buy a ULIP online.
What is a ULIP?
ULIP is a wonderful investment option considering that it provides one with a great amount of flexibility in terms of the variety of plans that are on offer. You can choose from high risk, medium risk and low risk investment options, based on your risk tolerance and financial goals. This is because you choose whether you want to invest in a plan that puts a larger portion of your funds into equities, bonds or debt instruments. So, the definition of what is the best ULIP plan will also vary from one individual to another.
These plans compartmentalise your payments. A major chunk of the funds is deposited towards the insurance cover. The rest of the funds are invested, similar to mutual funds, in different high-performance investments. With a fund manager taking care of where and when to invest your funds to ensure the best possible returns, you know your money is in good hands. You don’t need to learn about the financial markets or constantly monitor the performance of different investment vehicles. Everything is taken care of on your behalf by experienced and knowledgeable professionals.
How Does it Work?
In a nutshell, a Unit Linked Insurance Plan is an investment with benefits similar to mutual funds. But the dual feature of investment and insurance makes it a unique investment.
The plan provider will charge a certain premium, which you can choose to pay monthly, quarterly or even on an annual basis. You can use an online calculator to make an informed decision on how much premium you will need to pay to get the right insurance cover and meet your long-term financial goals. All you need to do is fill in some basic information and the rest is done by the calculator.
You can also keep tabs on your growing corpus by using a simple funds value chart, called the Net Asset Value (NAV). Once your investment matures, the fund value is paid to you. A higher sum assured or the base premium fund value plus a top up, depending on what type of a plan you have chosen, will be paid as insurance in case of the demise of the policy holder.
Some of the other features include:
A lock-in period of 5 years. After this period is over, you even liquidate your investment before it reaches maturity. You can also make partial withdrawals without hampering your plan continuity, an attribute that is not available in the other insurance plans. However, to reap the maximum benefits, it is best to stay invested for the long term.
The best ULIP plans are incredibly flexible about switching from one fund to another. This provides investors the freedom to change their investment strategy during the plan tenure. This fund switching facility is free of cost up to a specific extent in one policy year.
The premiums paid are subject to certain charges before it gets invested in the funds. However, these charges have decreased to a great extent over the previous decade, making ULIP a very affordable option. These charges basically include the premium allocation charges, administration charges, fund management charges and mortality charges.
So, go ahead and secure your family’s financial future with a plan that offers your multiple benefits.
