United Linked Insurance Plans or ULIPs are basically life insurance policies that are a combination of investment returns and protection of insurance. The amount you pay as an insurance premium is ultimately invested into market-linked funds in order to gain returns. Therefore, you reap the benefits of both, insurance coverage during the tenure as well as wealth generation through market-linked investments.
Salient features of ULIP
Some of the features and benefits of ULIP are as follows:
- There is no guarantee of return since everything depends on the performance of the market.
- The lock-in period is of 5 years during which you cannot make withdrawals or surrender.
- The sum assured is derived as a multiple of the premium.
- Through the top-up facility available under many plans, you can also pay an additional premium.
- Switching between the chosen funds through a premium redirection facility is also available.
How do ULIPs Function
The choice of premium amount, tenure period, premium paying term and frequency, everything is decided by the policyholder in the case of ULIP. In accordance with the premium you pay, the sum is derived. The premium is allocated towards one or more investment funds. You can choose the funds to invest in based upon your risk tolerance. Some of such funds offered are equity, debt, and balanced funds.
Depending on the market movements and fluctuations, your investment can grow over the tenure of investment. In the case of premature death, the higher sum assured or fund value is paid, whereas, on the maturity of the policy, the value is paid.