Meaning of Unit Linked Insurance Policy (ULIP)

ULIP plan or Unit Linked Insurance Policy is a combination of both investment and insurance. It serves the multi-faceted purpose of securing your life as well as serving the need for investment.

Let’s understand the meaning of a unit-linked insurance policy in a simple way. A unit-linked insurance policy is basically a plan in which the premium paid by the policyholder is utilized for two purposes. A part of it is used to provide a life or health insurance cover, and the rest is used for investment. It provides its buyers with a multitude of opportunities for wealth creation and expansion in the long term.

Benefits of a ULIP plan

ULIP plans offer its customers an opportunity to explore and make investments in various markets depending upon their investment goals and risking capacity. Here are some noted benefits of a ULIP plan:

Simultaneous life security and savings

Besides saving and investing, the Unit Linked Insurance Policy plan also helps protect you and your dear ones in times of emergency. Alongside, building a robust ground for growing wealth for longer terms through its investment aspect.

Flexibility

a ULIP plan is extremely flexible in various ways. This is one reason for its growing preference among customers. A ULIP helps you to achieve your long-dreamt financial goals in the following ways-

• Unrestricted switching between investment funds depending on your changing needs is easily granted.
• There are allowed partial withdrawals after the termination of a 5-year lock-in duration.
• It offers a choice to make an addition of sums of money in order to help investors get better on grounds of your changing situations and plans.
• ULIPs also allow you to opt for a rider if you wish to get extra protection.

Free-look period

Most ULIPs come with a free look period. This typically is a 15 day time period during which you have the liberty to cancel out the policy if it doesn’t satisfy you. The entire amount of premium is refunded after deducting the cancellation charges that are mentioned in the policy.

Encourages Goal-Based Savings

ULIPs are a long-term systematic saving option. In order to fulfill your long-term goals, like having your own house, ensuring good higher education, etc, you need to save. ULIPS are designed to address these key financial goals and encourage disciplined savings. They prevent you from compromising your long-term goals for your short-term benefits.

How does ULIP work?

When an individual invests in ULIP, the insurance company allocates a certain amount of the premium in bonds/shares, etc. The remaining amount is used to offer as an insurance cover.

The insurance company collects the money from all the policyholders and invests the entire amount in funds selected by them. Further, the total amount is divided into ‘units’. These units are then further allocated to the policyholders depending on the amount invested by them. The value of the units is referred to as Net Asset Value.

The various benefits and considerable returns offered by ULIPs make them the foremost choice for investment. But it is very necessary for one to completely study the market, analyze the risks and understand the benefits before taking up such policies. This is because ULIPs like any other investment are a matter of risk too.