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Saturday, 1 August 2015

Unit Linked Insurance Plans (ULIP): An Insight

Unit Linked Insurance Plans are Life Insurance Products which imbibe Insurance cum Investment option in a single Plan. Unit Linked Insurance plans tries to provide better return on Investment to the Policy Holders by investing a portion of the premium in Equity Markets and Debt Markets. In these kinds of Policies a portion of the premium is utilized to provide Insurance Cover while the rest is vested in Equity and Debt Schemes. The pool of funds is managed by the Fund Managers who have the expertise to handle and mobilize the funds. The management of Funds is similar to the way it is done in Mutual Funds. Individuals have the choice to allocate funds in Debt/Equity Schemes or in the combination of both.
ULIP is similar to Mutual Funds and the valuation of the Investment is arrived through the Net Asset Value (NAV) of the fund. The Premium is invested in the market to maximize return, after deduction of allocation charges for management of funds, policy administration expenses and providing insurance cover. These deductions are made by cancelling some of the units from the portfolio. The rest of the investment is used to purchase Units at their NAV from pool of Funds. Individuals have a choice of opting for funds depending on their appetite to take risks, they can allocate funds in debts (least risk) funds or in equities (high risk) or in a combination of both. The return on Investment is dependent of the performance of the fund.

You can also read about:
Term Insurance Plans: An Insight 
Money Back Insurance Plans: An Overview
Endowment Plans: An Insight

FEATURES AND BENEFITS OF UNIT LINKED INSURANCE PLANS
  • Unit Linked Insurance Plans are Life Insurance Cover which is market linked, and maturity benefit is based on the performance of the fund. These plans have a surrender value as well.
  • Return on Investment (ROI) is directly linked to the Capital Markets. The return is dependent on the performance of the fund over the stipulated time period (tenure of the policy).
  • Death/Maturity Benefit is equal to the Sum Assured or the value of fund (higher of the two).
  • Loans can also be availed against the Unit Linked Policy by the Insured as it is an Assurance Policy.
  • Individuals have the option to switch investment funds based on their needs and market scenario. (e.g, if equity market is under performing over a period of time then investment could be switched to debt funds and vice versa if the market out performs.

TAX BENEFITS

Tax Benefit is available U/S 80C (upto Rs 1,50,000/-) for Investments in Life Insurance Policies. Maturity/Sum Assured is also exempt from Tax U/S 10 (10D).

MATURITY/SURRENDER VALUE

Unit Linked Insurance Policy has a definite Surrender and Maturity Value.

FREE LOOK IN PERIOD

Most Unit Linked Policy come with at least 15 days of Look In period. During which you can have a detail look into the policy and decide whether you are going to continue with or reject it.

GRACE PERIOD

A Grace period of 30 days after the due date is allowed for the Annual Payment of Policy Premium. Failing which the policy will lapse.

POLICY TERMS AND CONDITIONS

Each Insurance company tries to offer some additional benefit in order to attract subscribers for the same.
Thus policy as well as Premium distribution will be different based on plan.

TENURE OF UNIT LINKED POLICY

Unit Linked Plans is available for tenures ranging from 5 years to 25 years.

REGULATORY AUTHORITY

Insurance Regulatory and Development Authority of India (IRDAI) is a statutory body which regulates the Insurance Industry.

IS IT AN GOOD INVESTMENT OPTION?

Unit Linked Policy offers investment cum insurance option to an Individual with moderate risk. It is preferred by Investors who are willing to take a bit of risk with their Investment and also want to avail the benefit of the Insurance cover at the same time.
Since the return is market linked and the fund is handled by professional fund managers with expertise in Portfolio Management they are able generate better returns in the long run.

In my opinion it one of the better options available as compared to the Endowment and Money Back plans as in the long run the returns are better and provides Insurance cover as well.

2 comments:

  1. Dear Amritesh,
    This is the first time I am visiting your site. I found your overview of Unit Linked Insurance plan very helpful. I shall definitely be reading more posts.

    I just had one question - I have heard from many people that the fees/ charges of ULIP are quite high, especially in the first few years, and this impacts returns. Would appreciate if you could shed some light on that.

    Thanks!

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    Replies
    1. Yes it is true....Because certain portion of premium is kept aside as mortality charge...further more the allocation/administration charges are also quite high if you compare it with mutual funds.
      Ulip is better than classical Endowment Plans...But not a very good investment option.

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