Team Fortune Makers

What Is A ULIP (Unit Linked Insurance Plan)?

The meaning of ULIP is quite simple: it is a market-linked plan wherein one can avail life insurance coverage and also invest in different funds. Similar to other types of life insurance, you are required to pay premiums for your ULIP. This ULIP premium may be invested in funds of your choice and also be directed towards building the life cover. When your plan matures, you get the fund value consisting of the amount you invested along with the returns you earned on it. In case of your unfortunate demise, your nominee may receive the death benefits of the plan.

How ULIP Works?

Here’s how it works in detail:

  • The premium you pay is used to meet two key financial goals, life insurance and investment.
  • Your money is invested in market-linked funds that you get to choose. The total amount invested may be divided into units, with each having a specific face value.
  • The value of each unit is referred to as the NAV. It can reflect any increase or decrease in the value of the underlying assets.
  • If you make partial withdrawals from the accumulated corpus, the corresponding number of units are sold.
  • At the time of maturity, you may receive the total fund value .
  • In case of your demise within the policy tenure, your nominee can receive the death benefit which may be the sum assured amount or the total fund value of the plan, basis the type of plan.
 

How To Choose A ULIP?

Understanding what a ULIP is may drive you to invest in one. There are different types of ULIP plans options you may choose from based on your needs and financial goals. Here are some suggestions that can help narrow your choices:

  • Analyse your personal goals

    Before choosing a plan, it may be essential for every investor to analyse their personal goals. You can invest in ULIPs keeping your personal goal in mind, like buying a house or planning for retirement.

  • Align your plan with your investment goals

    Before buying a ULIP policy, keep your investment goals clearly defined. For example, if you want to have a major stake in high-risk investments, you can think of investing in equity ULIPs.

  • Compare ULIPs

    You may compare the different features and advantages offered by each ULIP to determine the one that suits your specific needs. This may help you get the optimum maturity or death benefits.

  • Take Advantage of ULIP Flexibility

    ULIPs may offer investors a range of investment options and tenures to choose from depending on their risk appetite and financial goals. You may choose the suitable funds and tenure accordingly.

  • Analyse Features and Benefits of ULIPs

    Every ULIP has unique features and benefits. Having a proper understanding of their pros and cons and comparing their features may help you select a ULIP plan of your choice.

  • Check the Solvency Ratio

    An insurance company’s solvency ratio may showcase whether it may be able to honour its claims in the future or not. An insurance company must have a solvency ratio of at least 150% as mandated by IRDAI.

  • Check the Claim Settlement Ratio (CSR)

    The percentage of the total death related claims settled against the death claims received by an insurance company in a financial year is termed as CSR. A high CSR may indicate the insurer’s reliability in settling claims.

  • Pick an Investment Strategy

    Some ULIP plans have a focused goal that serves particular needs of the investors. For instance, a ULIP for retirement may focus on creating wealth for post-retirement needs. Going with a particular investment strategy may help investors generate regular income and fund future goals.

 

Benefits Of ULIP

A ULIP may offer a host of benefits that go beyond traditional insurance or investment plans. They may include:

  • Maturity Benefit: Unlocking Your Accumulated Fund Value

    Upon reaching the maturity of your ULIP plan, a rewarding benefit may await. You may become eligible to receive an amount equal to the accumulated fund value, serving as a maturity or survival benefit. This may ensure your investment grows over time and rewards your commitment. In case you pass away unfortunately, the maturity benefit may be passed down to your beneficiaries. Depending on the policy, they may receive either the sum assured or the fund value, depending upon the type of ULIP.

  • Death Benefit: Protection for Your Loved Ones

    In the unfortunate event of an untimely demise during the ULIP policy tenure, your family may receive the ULIP death benefit. This financial support, paid out according to the policy’s terms and conditions, may ensure that your loved ones are safeguarded in challenging times. It may also be noted that, regardless of the changes in the investment amount and fund structure, the death benefit stays unaffected. It may be considered as the base of any life insurance plan and likely stays fixed through the tenure.

  • Asset Allocation: Empowering You with Choice

    Unit Linked Insurance Plans can provide a unique advantage through asset allocation. This strategy may allow you to allocate your capital across different ULIP funds offered under your policy. By investing in equity funds, debt funds, or a balanced mix of the two, you may align your investments with your risk appetite, market ups and downs, and financial goals. This flexibility may empower you to navigate the market and potentially optimise your returns.

  • Wealth Generation: Harnessing Market-Linked Growth

    A ULIP investment may offer the potential for market-linked wealth generation over the longer term. Short-term market volatility may exist. However, if one looks at it historically, investment in market-linked funds may have favourable performance if one holds it over extended periods. By harnessing this growth potential, ULIPs may contribute to building wealth and achieving your long-term financial aspirations.

  • Tax Benefits

    ULIPs not only provide you with the opportunity to grow your wealth and protect your loved ones but may also offer significant tax advantages. 

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