Basic Terms And Conditions Of ULIPs
Updated On Sep 26, 2023
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A linked insurance plan, or ULIP, is a group of insurance policies that are connected together. A portion of the premium is invested by the insurance company in traditional life insurance, but the benefits are not available to the policyholder because it is not linked to the market. The savings portion of the premium is invested in funds in a linked plan, and the policyholder has access to the funds and can evaluate their performance. ULIPs have a sum assured, which implies that, like standard life insurance, they will cover the policyholder for a specific amount of money. It will invest in a number of funds at the same time.
Over time, the premiums are paid to develop a corpus, which aids in meeting target fund requirements. These plans give insurance to assist the family in the event of a loss of income, and the maturity value of the fund assists with the goal's actual cost.
Basic Terms And Conditions Of ULIPs
Before investing in a ULIP plan, you should understand the terms. Understanding the ULIP terms may assist you in fully comprehending the plan. As a result, here are the top ULIP terms you should be familiar with:
On the policyholder's death, the policyholder's nominees are entitled to a certain amount. The sum promised refers to this amount. The money assured to the beneficiaries is guaranteed by a ULIP investment. As a ULIP purchaser, you must ensure that the amount assured is sufficient to support your dependents in the event of your death.
A large portion of the premium you pay for a ULIP is used to invest in mutual funds. Over time, the investments will expand. The fund value represents the current total value of all invested money. Multiply the number of units you possess by the Net Asset Value (NAV), which is the monetary value of each unit, to get the fund's value.
Net Asset Value (NAV)
The value of a single unit of your investment in a ULIP is known as Net Asset Value (NAV). The number of outstanding units is divided by the number of investment funds, which are pools of investments from different investors (minus any liabilities). The price of a single unit is the fund's NAV.
As a policyholder, you are responsible for paying the premium in order for the insurance to continue to exist. Depending on your preferences, you can choose the length of the premium payment. As an investor, you can choose to pay premiums monthly, quarterly, half-yearly, or annually, depending on the option you choose when you invest. The ULIP may lapse if premiums are not paid on time. As a result, it's critical to pay your premiums on time so that you may get the most out of the investment you've made to reach your life goals.
The death benefit is the entire sum paid by the insurance company to the policyholder's beneficiary or nominee upon his or her death. The sum assured or the fund value, whichever is bigger, can be used. The plan you choose will determine what your recipient receives. The death benefit might be received in a lump payment or in monthly installments, depending on the nominees' preference.
When the policyholder's term expires, he or she is eligible for a maturity benefit. Section 10 (10D) of the Income Tax Act 1961 allows you to take advantage of a tax-free maturity amount, subject to certain conditions.
Additional advantages offered by insurance companies are known as riders or add-ons. The value of the coverage is increased by these add-ons. Critical illness riders, premium waiver riders, accidental cover, and so on are some of the most frequent riders available. However, depending on the company, these riders will differ.
A lock-in period is a period during which you are unable to withdraw your funds. If a policyholder surrenders a ULIP before the lock-in period expires, the fund value is switched to a discontinuance fund. Once the lock-in period is finished, the policyholder can withdraw the funds. A ULIP has a 5-year lock-in period.
It's critical to comprehend the financial product in which you'll be investing your hard-earned cash. Research and evaluate several policies before making a decision. Use a ULIP calculator to see how much a ULIP can help you achieve your life goals. Before deciding on a final product, an investor may select for or seek professional assistance.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.