What does ULIP mean
ULIP Stands for unit linked insurance plan. Now let us divide the term ULIP in multiple parts. The first part consist of “unit linked” while the second part consist of “insurance“. When a life assured pays premium, part of his premium are invested in fund. Units are allocated on the basis of premium. In this plan, life assured premium are invested in funds, that is why it is called Unit Linked. Other part of premium goes for risk cover i.e providing insurance.
Features of ULIP :
- Dual Benefit : A person’s multiple requirement gets covered in one policy i.e Investment and insurance. Part of policyholder’s premium gets invested in market, based on that Fund Value gets acquired. Fund value is calculated by multiplying units and NAV i.e Fund Value= Units* NAV. On death or maturity, higher of Sum Assured or Fund value is given to policyholder.
2. Top Up : In Simple words, Top Up means adding extra amount. In ulip, it means paying extra premium to increase coverage as well as increasing fund value. It is basically a one time premium paid by policyholder. It cannot be greater than sum of total premium paid by policyholder.
3. Partial Withdrawal : As the name suggest, in case of requirement of money, you can withdraw certain percentage of fund value. This feature of partial withdrawal is available post completion of five years lock in period.
4. Fund Switching : A policyholder has the option to switch his accumulated money from one fund to another. For example, while taking policy, he has invested his premium in balance fund and that fund is not performing well for several reason , at that time policyholder has the option to switch his money from Balance fund to Equity Fund. A Policyholder has the option to redirect his future premium in new switched fund which is known as Premium Redirection or can continue investing his premium in old fund.
Benefits of ULIP :
- Suitable for long term investment purpose : As per risk appetite, a person must select whether he has to invest in Equity,Debt,Balance, Money market or any other available fund. One major thing to be kept in mind while buying ULIP that it would be best to invest for long term because ULIP has potential to provide better returns.
- Tax Saving : As per section 80C, a life assured receives tax benefit on premium up to 1.5 lakh pa. Along with these, As per Section 10(10D) of the Income-tax Act,he does not have to pay tax on Maturity Benefit as well.
- Flexible : ULIP provides flexibility to switch fund from one to another. This helps a life assured to takes decision if funds are not performing as per his goals.
- Liquidity : A person can withdraw certain percentage of his fund value in case of any requirement. This benefit helps a person in case of any emergency or financial liabilities.
Things to keep in mind while buying a ulip:
1) You should know about charges which are going to be deducted .
2) ULIP consist of charges, such as Mortality charge, admin charge, premium allocation charge. It is advisable to be aware about the allocated units post deduction of charges.
3) A positive mindset is required to invest for long term. It is advisable to be discipline and pay premium on time. Being discipline helps in wealth creation which leads to better financial status.
This article is not sponsored and not meant for endorsing any particular insurance company. Please Check Terms and Condition of respective organization along with inclusion and exclusion before buying insurance policy.