Investment

What is a Unit Linked Insurance Plan?

what is ulips

A ULIP plan refers to unit linked insurance plan. It is a plan which is a combination of an insurance plan and an investment plan. A person who takes up the ULIP plan is the investor as well as the insurance policy holder as they will be getting the benefits of a comprehensive insurance cover and return on investments.

It is, basically, a two – in – one plan which gives double the benefits for the price of one compared to any other type of plans apart from an endowment plan. The unit linked insurance plan is one of the best investment options with high returns.

How Does it Work?

  • The investor pays the premium for the unit linked insurance plans so that their can get their insurance clai
  • The premiums that are paid by the investor are treated as the funds for the investment.
  • These funds are then put into various fund markets and companies to let them grow and let the capital appreciate.
  • The investors are made aware of where their funds are being put
  • They will get the return on their investments (the premium they paid) after the tenure of the ULIP plan is over, as an investor.
  • They will also get the insurance claim for the premiums they paid, as an insurance policy holder.

This happens as the premiums that are considered as the funds for investments while the premiums work for the insurance policy too.

Types of ULIP Funds

  • Cash Funds ULIP
  • Balanced Funds ULIP
  • Bond Funds ULIP
  • Equity Funds ULIP

1. Balanced Funds ULIP

Balanced funds are another type of the unit linked insurance plan. These are the one of the most stable funds of the lot because the money of the investments is invested into various markets through different funds. Then funds put in by the investors are divided and invested into different areas and fund markets so that the capital increases across various platforms. The funds are invested into equity instruments like company stocks, equities, etc. They have a low risk when the funds are put into fixed – interest instruments. But the balanced funds in general have a medium risk range. Now, the rewards in terms of returns are pretty high in this case.

2. Equity Funds ULIP

The equity funds is a type of unit linked insurance plan. The money for the investments is invested into equities and stocks of companies. The equity funds are one of the riskiest ULIP funds to invest into as the equities and the stocks have a high risk attached to them. But, as you might already know, with high risks, you get high rewards. So, if you invest into this plan, you can reap the benefits but only invest into it if you have a risk appetite on the higher side of the spectrum.

3. Fixed – interest, income and bond Funds ULIP

This is a type of ULIP fund to invest your money into. The risk of investing into this plan is medium, so people who can afford a medium risk appetite can choose this plan. The returns that the investors are subjected to are low to medium. The funds for the investments are invested into corporate bonds, government securities, fixed – income securities and other related instruments.

4. Cash Funds ULIP

Another type of ULIP funds are cash funds. For the appreciation of the capital, the money for the investments will be put into cash deposits, bank deposits and money market funds. The risk of the cash funds is really low. The return on investment is also low but that was expected as the risk is also low, right!

Also Read: All You Need to Know about New Generation ULIP

Why to Take Up a ULIP?

ULIPs – unit linked insurance plans have a lot of uses, benefits and purposes. It helps an individual to accrue a large sum of money so that it can be used in the future to meet the requirements, goals or wants of them as well as their family. A great benefit of a ULIP plan is that it completely eliminates the need of taking up and maintaining an insurance plan as well as an investment plan because the ULIP provides you with the benefits of both under the unit of one plan which uses the premiums of the insurance policy as funds for investment and invested the policy bearer’s money into fund markets.

Involvement of the Investor

The unit linked insurance plan has a high level of transparency. The transparency of the plans comes into action after the funds have been put into investments. The investor is completely aware about what all funds their investments will be going into. It is made sure that the investor knows which market their money is being put into. The NAV – Net Asset Value is where the insurance policy bearer is able to check the status of their investments that have been made into various markets.

Benefits of Transparency

There are benefits to when the investor knows about where the funds are invested, it helps them to have an idea of how much risk the investment possesses. This will allow them to study and analyze the fund markets and company markets to see if the funds markets where their funds have been invested into carry any risky or not and when it will be the most beneficial and the right time to get their returns by taking their money out. It gives them a clear picture of how much profit or risks it has been having in the past years the fund has been working and how good it will do to them and also helps them to anticipate and prepare for any profits or losses.

Investing into ULIP funds and plans can be really beneficial for someone who does not want many plans on hand and has a certain risk appetite according to which they can choose the fund to invest into.

About Ajeet Sharma

My Name is Ajeet Sharma Financial Blogger & Founder of Financegab.com. We are a personal finance blog dedicated to personal finance & financial planners. The main aim of this blog is to help people to informed financial decisions.
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