Unit Linked Insurance Plans-Sounds complicated? We will simplify it for you

One-line Description: Unit Linked Insurance Plans or ULIPs are a combination of investment and insurance. We help you understand it in an easy way.

Abhijit wanted to invest in the market and was also looking for a suitable life insurance policy. Being a first time investor, he was cautious and didn’t want to invest in something very risky. He was recommended a Unit Linked Insurance Plan by a financial advisor and found that it matched both his needs of insurance and investment. He looked at different life insurance plans and found the one that was suitable for him and invested in it.

Many people find ULIPs confusing to understand. A traditional life insurance plan such as a term plan is easy to understand because premiums cover the life of the policyholder. They have a simple maturity and death benefit. In ULIP, depending on the conditions of the policy, you can get the sum assured, or the fund value. The premiums may also be higher because they incorporate an element of investment.

What are ULIPs?

A ULIP is a linked insurance plan. A linked insurance plan is one where the investment is linked to the market. In traditional life insurance, a portion of the premium is invested by the insurance company, but since it is not linked to the market, the benefits are not enjoyed by the policyholder. In a linked plan, the savings component of the premium is invested in funds and the policyholder can access the funds and assess the performance. ULIPs have a sum assured, which means, just like traditional life insurance, a ULIP will insure the policyholder for a particular sum assured. At the same time, it will invest in different funds. Depending on the conditions of the policy, the maturity and death benefits will change.

ULIP is a long term investment, just like other life insurance. The premiums paid over time build a corpus which helps to meet fund requirements for goals. A lot of people start ULIPs with different end goals in mind, such as retirement, or child’s education, or child’s wedding. These plans help provide insurance cover to help the family in case of loss of income, and the fund’s maturity value helps with the actual cost of the goal. To illustrate, let us consider Aegon Life’s iMaximize plan which is used to build a corpus for a child’s education. In iMaximize, there are no premium allocation charges, which means the entire premium is invested in different funds. The policyholder can switch between funds depending on the performance of the fund and the requirement for funds. This plan provides triple benefits, the family gets death benefit in case of death of policyholder during the policy term. The future premiums are waived off and the policy continues without further premiums. It provides an annual payout equal to the policy premium and the third benefit is that the total fund value is received at the end of the term.

One important point to remember about ULIPs is that they have a lock- in period. During the lock- in period, the policy does not permit partial withdrawals. ULIPs can be surrendered while in the lock- in period, but the funds won’t be paid out till the end of the lock- in period. The funds will be split up to cover the cost of the insurance company. Any surrender done after the end of the lock- in period will not incur any charges. The Insurance company will pay the total fund value to the policyholder in its entirety.

ULIPs provide facility for partial withdrawal of funds as well. Depending on the insurance company, there is a specified percentage of funds which can be withdrawn. No partial withdrawal is possible before the end of the lock- in period.

ULIPs provide transparency about the performance of the funds. This is where they score over traditional life insurance plans. In a non-linked life insurance policy, it is difficult to say how the funds are performing, and indeed, the performance of funds is not the objective of a traditional life insurance policy. But ULIPs offer transparency and flexibility.

Investing in a ULIP is excellent when you are saving up for a goal like your child’s education or your child’s wedding. Plans like Aegon Life’s iMaximize provides triple benefit which helps benefit the policyholder’s family in every scenario. Decide your goals and pick the ULIP that works best for your needs today. 

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Created on Jan 17th 2019 02:33. Viewed 577 times.

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