It is an acronym for ‘Unit linked insurance Plan’. This is linked to units of investment which are made in the capital and money markets. Hence, ULIPs are a combination of life insurance and market linked investment. Therefore, it provides you life cover as well as capital appreciation linked to the capital markets. In other words ULIPs are long term investment cum protection plans that offers individual an opportunity of availing market linked returns while providing life insurance protection. Depending on individual’s risk appetite one has the option of choosing from host of funds having varied degree of risk exposure.
In ULIPs, a part of the investment goes towards providing you life cover. The residual portion of the ULIP is invested in a fund which in turn invests in stocks or bonds. The value of investments alters with the performance of the underlying fund opted by you.
It is firstly introduced in 1971 by Unit trust of India with the Government of India.Then in 2005, IRDA (Insurance regulatory and development authority) had plotted the major guidelines for the insurance companies.
How is it Structured?
In a ULIP ,the full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining after providing for various charges under the plan. Thus, the portion of premium used to purchase units varies from product to product.
The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units.
Advantages Of ULIP:
- Market linked returns: Unit linked plans give you an opportunity to earn market-linked returns as part of the premiums are invested in market linked funds which invest in different market instruments including debt instruments and equity in varying proportions.
- Life protection, Investment and Savings: Unit linked plans offer the twin benefits of life insurance and savings at market-linked returns. Thus, you have the opportunity to invest your money to earn higher returns, while taking care of your protection needs. Investing in unit linked plans helps to inculcate a regular habit of saving and investing, which is important for building wealth over the long term.
- Flexibility: Unit Linked Plans offer you a wide range of flexible options such as the option to switch between investment funds to match your changing needs,the facility to partially withdraw from your fund, subject to charges and conditions etc.