ULIP Plans – What is ULIP | Unit Linked Insurance Guide

Insurance companies came up with Unit Linked Insurance Plans (ULIP) which provided a person with the freedom to invest a certain amount of their money in the capital market while a portion was kept for risk coverage. Compared to share market and mutual funds, ULIPs promise a higher return on investment. In the present scenario, ULIPs have emerged as one of the leading investment options as they not only do provide insurance cover but also help in enhancing your investment portfolio. Hence, it is no wonder that they have become the ideal choice of the working class.

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Why opt for ULIP?

Unlike keeping your eggs in the same basket, ULIP diversifies and invests your money into shares, bonds & mutual funds apart from offering risk cover to the policy buyer. Thus, it won’t be wrong to term it as a double delight, offering protection as well as investment opportunities to the investor. An added advantage is that the investment, as well as returns, can be customised as per the client’s requirements. If the investor has a good knowledge of the nuances of the stock market, they can even manage their own portfolio. It can easily be said, that you would find it slightly difficult to find another investment opportunity that is as flexible as ULIP plans.

Where can you invest with ULIP?

As mentioned previously, ULIP is one of the most flexible investment options that a person can have. Here’s a list of the investment funds available under ULIP:

Cash Funds: The safest investing option (low-risk category); also called money market funds. The investor receives a fixed amount of returns upon maturity.

Bond Funds with Fixed Interest: A combination of secured and unsecured investment is done in this case. You get timely returns in this asset. Investment is generally made in corporate bonds, debt funds, government securities etc. Risk factor slightly higher than the previous option.

Equity Funds: As the name specifies, the investment is done primarily in stocks and equities. This is considered the riskiest investment of the ULIP portfolio and often the most rewarding one too! If you have a good risk-taking appetite, this should be your preference.

Balanced Funds: As the name suggests, this is the most stable investment in ULIP. Here the amount is invested in various places (corporate bonds, stock market etc.) with the investment varying in all. The money is paid through premiums. These fall in the medium-risk category.

How Can You Benefit from ULIPs?

  • Flexible Investment – You can switch between funds as per your requirements. Partial withdrawals can be made (subject to term and conditions). You can increase your investment anytime through a top-up facility which allows depositors to make single additions to their premium.
  • Transparent – You can easily keep track of your investment portfolio. You are informed of the investment being made from the premium as well as the value and number of funds you have.
  • Option to Choose Funds – Based on your risk taking abilities, you can choose where to invest your money. Higher risks often lead to higher returns. Hence, it can be said that investing in equity funds is for risk takers. If however, you aren’t much of a risk taker, you can invest in debt funds. There is also the option of Hybrid funds which are available for investors in ULIP.
  • Additional Coverage – Additional coverage for loved ones is available with ULIP. They provide insurance including accidental death, critical illness and term riders to take care of the financial needs of the family in case of any unforeseen problem.
  • Tax Benefit – Maturity benefit, death benefit and premium paid are all tax-free.