What is Unit Linked Insurance Plan and how it works?

What is Unit Linked Insurance Plan and how it works?

Unit Linked Insurance Plan (ULIP) is a hybrid plan that offers the benefits of both insurance and investment benefits. In this plan, the invested amount will be allocated as a part for insurance and the rest for the investment funds with respect to the investment plan. In this way, ULIP offers you benefit insurance cover with the gain of returns on investment under a single medium.

Know the charges that are applicable for ULIP investment

  • Fund Management charges
  • Premium allocation charges
  • Surrender charges
  • Service and administration charges
  • Switching Charges
  • Rider Premium Charges
  • Mortality Charges

What are the types of Funds that come under ULIP?

Equity Funds- These are the funds in which the consumer invests on stock markets, the performance depends upon the performance of the market. In this type of fund, there is a higher risk of returns.

Debt Funds- In this type of fund, the investment is the type of investing in bonds, and the risk of returns is less, comparatively with equity funds.

Balanced Funds- It is a hybrid component of both stock and bond, this is the type of funds for those who look for safety, income, and good returns.

Check the below image to know the returns and the risks that come with the above funds.

ULIP Funds Comparison

What are the features of ULIP?

  • Lock-in period - 5 years
  • Tax Saving - Under Section 80C
  • Surrender Option - Available (Terms apply)
  • Free Top Up's - Investor can invest flexibly with no limit of investing amount
  • Switching of funds - Available between the funds (Equity/Debt/Balanced)

Benefits of Unit Linked Insurance Plan (ULIP)

  • Critical illness
  • Flexibility
  • Guaranteed Maturity returns
  • Option of choice of funds
  • Partial withdrawal option
  • Protection from inflation
  • Settlement option
  • Switching facility
  • Tax benefits
  • Transparency

Bottom Line

ULIP saving plans are better for the age groups of 25-45 years as it is a long-term investment plan, to gain higher returns the minimum maturity is 10 years and this age range is a good option. Also, it offers many advantages like flexibility, switching, good returns many choose to invest in ULIP.