In today’s day and age, one of the most salient financial advice anyone can receive is to make sure that they have life insurance as a part of their investment portfolio. After all, it is paramount that in the event of their unfortunate demise, their family’s financial needs will always be fulfilled. Having said that, prospective insurance seekers today have a wide array of life insurance products and schemes to choose from. While some settle with a traditional, straightforward life insurance policy that provides just coverage, others seek for something more.
For the latter type of insurance seekers looking for a proper return on their investments, Unit Linked Insurance Plans, or ULIPs are a true insurance boon. Considering their popularity, if you too have been thinking about signing up for a ULIP plan, it is essential that you first understand exactly how ULIP plans work for you.
Here is a closer look at how ULIP works, its features as well as its functions.
What is a ULIP?
Unit Linked Insurance Plans or ULIPs are essentially a type of life insurance product whereby the policyholder gets to enjoy the benefits of investments as well. Like all life insurance products, the ULIP policyholder pays monthly or annual premiums. However, with ULIPs, under a single integrated plan, this amount is partly set aside for insurance and partly in a form of investment fund. With a ULIP plan, the type of investment funds as well as the features of insurance coverage can be chosen by the policyholder and therefore, it offers immense flexibility to the insured.
Types of ULIP Funds
Like mutual funds, ULIP providers pool money from several policyholders and invest the amount in the respective funds chosen by them. These investment funds differ on the type and distribution of instruments in which the money is invested. Based on the investment preference and risk appetite of the insured, the policyholder can choose from primarily three types of ULIP funds:
How ULIP plans work with equity funds is that part of the premiums are invested primarily in the equity market ie. company stocks and equities. The equity market is known for its fluctuations and volatility and hence, these types of funds are ideal for slightly high-risk investors. As a result of being linked with the market, these funds come with their own share of high risk, but are accompanied with prospects for high returns as well.
Another way how ULIP works is by investing your premiums in more stable avenues such as fixed income instruments and the bond market. Without the volatility of the market, these types of funds are ideal for investors with a more conservative approach. Both the risk and rewards for these types of funds therefore range from medium to low.
An ideal balance between the investment strategies of the funds mentioned above can be found in ULIP plans with balanced funds. With these types of funds, ULIP premiums are invested in a combination of both equity as well as debt funds. Therefore, the policyholder is able to make the most of market opportunities as well as enjoy the stability of debt instruments.
Features of Life Coverage with ULIPs
As mentioned above, while a variety of insurance products on the market offer coverage, ULIP plans offer certain features that are uniquely beneficial.
The popularity of ULIPs is greatly due to its ability to offer dual benefits to policyholders, namely insurance as well as investment. This is a prime feature that sets it far apart from other types of life insurance.
One major advantage that ULIPs have over other types of life insurance offerings is that they offer policyholders the facility of partial withdrawal. While ULIPs are ideal for medium to long term investments, they nevertheless offer the opportunity for you to withdraw your accumulated fund value after a period of 5 years.
Your life insurance policy can extend over a long period of time, during which your investment strategy too might undergo some major changes. To help accommodate for this, ULIPs offers policyholders the option to switch between the types of funds they wish to invest in. Based on your life stage and changing market outlook, you can change up the investment in your ULIP plan.
All in all, how ULIP works is by setting aside your premiums for both life coverage as well as towards the investment funds of your choice. With their dual benefits, ULIP plans ensure that not only do you provide ample coverage for your family’s needs, but also invest in wealth creation for the future. However, how well ULIP plans work for you depend on your choice of a trusted, reliable insurer and the right ULIP plan. To that end, you can invest in the variety of ULIP plans available on Finserv MARKETS.
With the ULIPs on Finserv MARKETS, you can effectively build your wealth over time, and easily switch your choice of funds based on market movements. Moreover, the ULIP plans on Finserv MARKETS also offer ample insurance coverage for both yourself as well as your family. Most importantly, they allow you to choose from their array of specialised plans to find the ULIP that meets your needs best -be it a retirement plan, child plan or investment plan.
Also read in detail about the ULIP tax benefits you can avail with a Bajaj Allianz ULIP plan available on Finserv MARKETS.
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