Unit-Linked Insurance Plan
But what is ULIP, and how does it function? It stands for Unit-Linked Insurance Plans and is offered by insurance companies. It is different from regular insurance policies in that it provides investors with both investment and insurance benefits within the same plan.
The Unit Trust of India was the first to launch Unit Linked Insurance Plan's in the country in 1971. When the government, in 2001, allowed foreign investors into the insurance sector and the Insurance Regulatory and Development Authority or IRDA, issued its own major guidelines for Unit Linked Insurance Plan's in 2005, a number of private insurance companies began creating these plans for their customers. This has led to an abundance of ULIP schemes being available in the market.
How a Unit Linked Insurance Plan works is that a portion of the premium paid goes towards providing insurance coverage for the policyholder, while the remainder is then invested into various debt and equity schemes. The money that the insurance provider collects is then used to create a pool of funds, which is invested into various market instruments in a number of proportions, much in the same way as mutual funds.
The policyholder can decide which type of funds their share can be invested in, either debt or equity. They can even opt for a combination based on their investment goals. As in mutual funds, the policy holders of a ULIP are allotted units. These units have their own net asset value (NAV), which is declared on a day-to-day basis. The rate of return to the policyholder is decided as per NAV.
There are a number of plans available and they vary, depending on the investment goals that an investor sets, his appetite for risk, and his investment horizon. Some Unit Linked Insurance Plan's are reserved in their investments and choose to invest a large percentage of their capital into debt instruments. Others invest entirely in equity. It is up to the investor to decide which plan suits his need. No matter the type of ULIP, most offer investors common features such as the ability to switch between different funds, top-up facilities, options to surrender, tax benefits, enhance their coverage through additional riders and to increase or reduce their protection level.
Due to the investment aspect of the policy, ULIP's carry a number of applicable charges that are removed from the payable premium. These costs include charges for allocating premiums, switching funds, mortality, administration of policy and also a charge for withdrawing from the policy. As Unit Linked Insurance Plan's are linked to market conditions and the risk involved is borne almost entirely by the policy holder, it is very important to understand every element of a this plan before investing in one.
The Unit Trust of India was the first to launch Unit Linked Insurance Plan's in the country in 1971. When the government, in 2001, allowed foreign investors into the insurance sector and the Insurance Regulatory and Development Authority or IRDA, issued its own major guidelines for Unit Linked Insurance Plan's in 2005, a number of private insurance companies began creating these plans for their customers. This has led to an abundance of ULIP schemes being available in the market.
How a Unit Linked Insurance Plan works is that a portion of the premium paid goes towards providing insurance coverage for the policyholder, while the remainder is then invested into various debt and equity schemes. The money that the insurance provider collects is then used to create a pool of funds, which is invested into various market instruments in a number of proportions, much in the same way as mutual funds.
The policyholder can decide which type of funds their share can be invested in, either debt or equity. They can even opt for a combination based on their investment goals. As in mutual funds, the policy holders of a ULIP are allotted units. These units have their own net asset value (NAV), which is declared on a day-to-day basis. The rate of return to the policyholder is decided as per NAV.
There are a number of plans available and they vary, depending on the investment goals that an investor sets, his appetite for risk, and his investment horizon. Some Unit Linked Insurance Plan's are reserved in their investments and choose to invest a large percentage of their capital into debt instruments. Others invest entirely in equity. It is up to the investor to decide which plan suits his need. No matter the type of ULIP, most offer investors common features such as the ability to switch between different funds, top-up facilities, options to surrender, tax benefits, enhance their coverage through additional riders and to increase or reduce their protection level.
Due to the investment aspect of the policy, ULIP's carry a number of applicable charges that are removed from the payable premium. These costs include charges for allocating premiums, switching funds, mortality, administration of policy and also a charge for withdrawing from the policy. As Unit Linked Insurance Plan's are linked to market conditions and the risk involved is borne almost entirely by the policy holder, it is very important to understand every element of a this plan before investing in one.
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