ULIP funds are the best investment tools

Insurance is for protecting our life from any uncertain events like death or accident. The core purpose of normal insurance policy would be just protecting the life but not ensuring any savings for future. But due to rising inflation costs, advancing lifestyle standards, growing competition people wish to build a financial security blanket as well towards their family members. People want a plan which gives protection as well as returns for their investment. Therefore, insurance companies come up with the ULIP plan where the premium amount is invested in the stock market and returns better income on the maturity period.  When people see how investments in the capital market grow gradually, they prefer to use their funds in ways that help them to participate in the boom in the capital market.

Insurance companies develop ULIP plans that combine the benefits of insurance coverage as well as give options to participate in capital market. A part of your premium goes towards coverage which stays secured irrelevant to the performance of your funds in markets. Such plans of insurance are called Unit Linked Insurance Plans.

In ULIP plan, insurers offer policyholders a choice of funds in which their money can be invested in following types of funds:

•Equity Funds: Also known as Growth Funds, there investment in equities which are shares/ stocks traded in the stock market.

•Debt Funds: Also known as Bond Funds, these investments are mainly done into government guaranteed and other high investment grade corporate securities and bonds. They are termed as safe bonds.

•Money Market Funds: Also known as liquid funds, the investment may be more in short term money making instruments such as treasury bills, commercial papers etc.

•Balanced Funds: In this type of funds, the investments are in both equity as well as debts.

ULIP provide a lot of flexibility to the policyholders:  ULIPs are the only investment tools that come with the option of switching funds from one fund to another during the term of the policy. Policyholders are allowed to make a lump sum additional contribution at any time. The risk cover will remain same, but the amount pooled into the fund for investment will change i.e. known as Top-up.

In switch funds option, policyholders can redirect the current premium into any fund, in any proportion, irrespective of the fund in which the earlier premiums have been invested, to take advantage of the market conditions, without exercising the switching option.

However, if the policyholders could not pay the premium in a year’s time, subject to certain conditions, no new units will be added to his or her fund. Also some units will be reduced to pay for the annual charges for cover, administration, fund management etc. Such phase is called as premium holiday. Lastly, ULIP work differently compared to other traditional insurance plans in terms of documentation, lapse, revival conditions and in claim settlement procedures.  You need to fill up the family history & personal history. The agent’s report is also called for extra verification. The underwriter might demand for more reports, medical or otherwise to check insurability, if required.