Insurancesathi.comWhat is ULIP
What is ULIP?
ULIP stands for Unit Linked Insurance Plans. In short if I need to explain as to what is ULIP, then I would say that it is an investment oriented Insurance plan where in the policy holders money gets invested in the market. By Market it doesnt mean stock/share market alone. It will be a combination of Investment in Bonds and shares/stocks.
ULIP has generated lot of hype in the market mainly because of its features and transparency. It has generated enough Hype for the wrong reasons as well. By wrong reasons I do not intend to blame the ULIP as such but the manner in which it has been sold or missold to be more appropriate.
Let me explain what is ULIP with an example. Lets take an example of Mr. Rao who wants to invest Rs 1lac annually for 5 years.
1) Mr Rao has an option to invest his money either single time, for five years or as long as his policy tenure.
2) Mr Rao will be entitled for a life cover based on his investments and as per the Insurer terms.
3) There are some charges like Mortality charge, policy administration charge, fund Management charge, premium allocation charge which will be deducted from his investment.
4) The amount minus the charges will be invested by the Insurance company based on the specifications of Mr. Rao. Now Mr Rao can chose between debt and equity funds based on his risk appetite. Usually Insurance companies will have 6-8 different funds having combinations of varying percentages of debt and equity. Mr Rao has the option of changing the debt-equity proportions of his investment any time.
5) If something goes wrong with Mr Rao during the policy term, his family will be entitled to recieved the sum assured on his death. If he continues the full policy term, he will be entitled to get the maturity proceedings based on the performance of the funds in the market.
6) ULIP has lot of additional features which are very attractive. e.g Mr Rao can make partial withdrawals from his policy which will help in getting him emergancy funds without having to surrender the policy. The amount of money he can withdraw and the frequency of withdrawals varies from company to company.
7) Lot of companies provide loyality additions to its customers which will reduce the initial charges levied on the customer. This again is an exclusive feature of ULIP’s
Returns on ULIP is quite high compared with other plans. Mr Rao needs to stay invested for atleast 10 years to see very good returns. In the long run ULIP’s actually out beat Mutual funds!!!
There are lot of other amazing features of ULIP which is actually not possible to capture in a small article like this. Incase you need more clarity, please post of comment on this page or email me contact@insurancesathi.com or call on +91 9686134555
Guess i was able to explain briefly on what is ULIP.