Everybody wants to have a financially secure future with massive wealth at the end of their career. However, we all know that risk and returns go hand in hand. One can not either stay completely risk-averse and not invest in the market or go full out and worry about losing their money every second. What is the middle ground? ULIP or Unit Linked Insurance Plan is a unique combination of insurance and investment. Many people in India still invest or get insured on the advice of their friends, family, and relatives. However, the trend has changed in recent years, and people are levitating towards multi-faceted insurance and investment options. The genuine question of “what is ULIP” is getting its due attention. Let’s get to know about ULIP and its major elements in this article.
What Is ULIP?
Insurance companies have come up with a unique product that combines both insurance and investment in one product known as a unit-linked insurance plan (ULIP). The policyholder needs to make regular payments of premium for enjoying the benefit of both investment and insurance. In ULIP, a part of the premium is utilized for insurance coverage, and the remaining portion is invested in the equity or debt market, basically mutual funds. The insurance company does not invest each policyholder’s amount individually. Instead, they pool the part premium and invest the sum total according to the risk appetite of a section of policyholders. The return on such investment is subject to risks with capital markets. A policyholder has to bear both the investment risk and returns.
What Are Some Of The Major Elements Of ULIP?
When we ask “what is ULIP,” one of the major things people want to know is about features and functionality. Here are some of the major elements of ULIP:
ULIPs are one of the most excellent tax-saving investments as they are EEE which means exempt-exempt-exempt. It implies that the policyholder can get a tax deduction at the time of investment while earning returns and during withdrawal.
In ULIP, the policyholder has the flexibility to choose what kind of risk they want to take. They can invest in equity, debt, and balanced funds according to their risk appetite. Many ULIPs have the option of switching in between funds as per the policyholder’s financial needs.
Long Term Investment
ULIPs give good returns after a long duration, say 15-20 years. This happens as, over time, the market fluctuations, charges paid, and premiums give higher returns by staying put in the profitable investment avenues. Hence, they are a long-term investment.
When people ask, “what is ULIP” they also have this doubt whether they have the option of paying a premium at once? Yes, apart from regular premium ULIPS, there are single premium ULIPS as well. The policyholder pays a lump sum amount at the beginning and enjoys the benefit for the entire policy period.
ULIPS can be a solution for those investors that are looking for both returns and security. Hence, the question,” what is ULIP” is quite simple, unlike many investors may think.