What is a ULIP?
A ULIP plan is a type of life insurance plan. ULIP stands for unit linked insurance plan. It is a plan which consists of an insurance plan and an investment plan together under one policy. If an individual takes up a ULIP plan, they will be considered as the investor as well as the insurance policy bearer. This is because they will be getting the benefits of a comprehensive insurance cover and return on investments. It is, basically, a two – in – one plan as it gives double the benefits for the price of one compared to any other type of plans apart from an endowment plan. The unit linked insurance plan also has a high return on its investments apart from all its advantages.
Types of ULIP funds: There are various types of ulip plans to invest your money into according to your preferences for the fund markets and the risk appetites.
- Balanced ULIP Funds
- Cash ULIP Funds
- Equity ULIP Funds
- Bond ULIP Funds
Functioning of the ULIP
- The unit linked insurance plans will start working when the plan holder pays the premium insurance plans so that their can get their insurance claim.
- The premiums paid by the investor are considered as the investment funds for investing into the plan. The premiums work for, both, the insurance policy and the investments, so you can get twice the benefits for a low amount.
- These funds are invested into various markets and companies to let them grow and so that the capital appreciates through time creating a significant amount of return for the investors to earn from.
- In ULIP, the investors are aware of where the funds that they invested are going to be put. This is possible by the NAV.
- The investors will be getting the return on their investments (the premium they paid) after the completion of the ULIP term. This covers the investment plan part of the ULIP.
- The investors get to earn the insurance claim for the premiums that they had paid. This covers the insurance plan part of the ULIP.
| Type of Unit Linked Insurance Plan
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Investments, risks and returns
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| Equity Funds ULIP
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Equity fund is a type of ULIP fund that one can invest into. The money put in by the investors for the investments is invested into equities and stocks of companies to let the capital appreciate. The equity funds are one of the riskiest funds by ULIP to invest into because the stocks and equities have a high risk involved. So, now that it is established that the risks are high, it might have been obvious that the return on investments will also be high. If you invest into this plan, you can reap the benefits but only invest into it if you have a risk appetite on the higher side of the spectrum so that you can bear if any losses occur.
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| Balanced Funds ULIP
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Balanced funds are a type of the unit linked insurance plan. They are considered to be one of the most stable funds of all because the money of the investments is invested into various markets through different funds. Then funds put in by the investors are split up and put into different areas and fund markets so that the capital appreciates across various platforms. The funds are invested into equity instruments like company stocks, equities, etc. These funds have a low risk but only when the funds are put into fixed – interest instruments. The balanced funds have a range of medium risk. The returns are pretty high, here.
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| Cash Funds ULIP
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Cash funds are a type of unit linked insurance plans. These plans work in a way that the fund money for the investments will be put into cash deposits, bank deposits and money market funds so that the capital can appreciate through time. The risk of the cash funds is quite low. With a low risk that the cash funds have, the return on investment is also pretty low.
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| Fixed – interest, income and bond Funds ULIP
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The Fixed – interest, income and bond fund is a type of ULIP fund into which you can invest your money into. There is a certain risk which comes with investing into this plan. It falls on the medium range of risk. The returns that the investors are to get are low to medium. The funds for the investments are put into into corporate bonds, government securities, fixed – income securities and other related instruments.
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How much does the investor know?
The unit linked insurance plan also comes with a high level of transparency. After the investments have been made with the funds paid by the investors through the premiums, the transparency starts. The plan holder or the investor is fully made aware about what type of and which all funds their investment money will be invested into. It is made sure that the investor knows which market their money is going to be invested into. The NAV – Net Asset Value is where the insurance policy holder can check the status of their investments that have been made into various markets. It will show where their investments are currently in the market and on what position and also the net asset value of the fund company.
This allows them to analyze as well as study the fund markets and company markets to see if the funds markets that their funds have been invested into have any risks or not and it might also help them to find out the best time to check out their money and get the best returns as the fund market is a really unstable place.
Investing into a unit linked insurance plan will only help you get extra benefits by eliminating the added hassle of two plans which provide you the benefits under one plan itself.