What Are The Features Of ULIP?

Understanding ULIPs

Unit Linked Insurance Plans or ULIPs are hybrid policies that enable an individual to allocate money for their life coverage along with long term investment in the capital market. The premium paid towards the ULIPs is bifurcated into two parts- the smaller portion is allocated to provide the life insurance coverage of the policyholder whereas the larger portion is set aside for investment. The insurer pools the premium paid by different policyholders and forms a single large fund. The insurers invest this fund in the shares, debt funds or in a balanced mix of both, as per the interests of the policyholders. The insurer divides the total fund into various units with a specific value attached to each of them. The number of units a person gets depends on the premium paid by him/her. The returns earned by this policy depends on the market performance of the funds invested.

Features Of Unit-Linked Insurance Plans ( ULIPs)

The following are the features of the ULIPs explained in brief:

• Selection Of Investment 

ULIPs offer you the freedom to choose your investment channels according to your risk appetite. Investment in equity funds requires high risk while investing in debt funds is conservative. According to the risk appetite of the investor, he/she can choose to invest in shares or debt funds or enjoy the best of both by investing in balanced funds. 

• Lock-in Period

The funds invested in the ULIPs remain locked for a compulsory period of 5 years. During this period, the policyholder cannot withdraw any amount from the funds. Also, he is not permitted to switch or surrender the funds during this period.

• Fund Switch 

If the performance of your selected funds isn't satisfactory or if you also anticipate a change in the market conditions in future, you always have the option to switch from one type of funds to another within the same plan. Hence, you can shift to debt funds during market slowdowns and switch to equity funds during upswings. This fund switch is possible after the lock-in period of 5 years. 

• Partial Withdrawal 

You also have an opportunity to partly withdraw funds to meet any financial emergencies after the 5 year lock-in period. The number of withdrawals and the interval between each withdrawal is determined by the insurance company. 

• Top-Ups

One can invest a surplus amount in addition to the base premium to buy additional units and generate high returns.

• Mode Of Payment

A policyholder can choose a particular method of premium payment from yearly, half-yearly, quarterly or monthly, according to his/ her convenience. 

• Charges 

The ULIPs charge the policyholder under various heads viz., Fund Management Charge, Administration Charge, Switch Charge, Rider Charges etc.

Conclusion 

The ULIPs are best suitable to those persons who are planning for a long term investment along with a good risk appetite. The longer the funds stay invested, the higher would be their returns. Therefore it is always suggested to go for ULIPs only if a person has a specific long term goal to achieve. The choice of Policy is completely personal and is influenced by various factors such as the income of the policyholder, circumstances, long term goals etc.

Also Read: 

How Safe Is It To Invest In An ULIP?

10 Most Frequently Asked Questions for ULIP

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.