Unit Linked Insurance Plan (ULIP)

Whenever we want to have high returns on our investment, we are always advised to invest in capital markets. But it becomes a problem to invest if one doesn’t have sufficient understanding about the markets.

Insurance sector also provides the opportunity to invest in markets in the form of ULIPs or Unit Linked Insurance Plans. A ULIP is a combination of life insurance and a market linked investment product. Hence, it provides a life insurance cover along with returns on the money invested.

When one buys a ULIP, he pays some amount called premium amount. A pool of money called fund is created for the large number of investors who invest into the same plan. The insurance company appoints a fund manager for the fund. A fund manager is the one who makes investments and tracks how the fund is performing in the market. After deducting a few charges, the investors are allotted certain numbers of units. The number of units allocated to a particular investor is proportional to his investment or the amount of premium paid by him. The charges which are deducted from the premium paid by the customer are regulated by IRDA, the authority that regulates the insurance industry.

Based on everyday’s performance of the fund in the market, the value of units changes and the acquired value is called Net Asset Value (NAV) for each investment fund. When the policy term ends or the policy holder wants to encash the policy, the policyholder is paid the fund value or the market value of the units held by him i.e. no. of units multiplied by the NV of the date on which request for redemption is received.

Every insurance company wants its customers to benefit from their investment. It is a symbiotic relationship. If the insurance company provides good returns to the customer, a bond of loyalty develops between the two. But, since markets are very volatile, it is always advised to the customer to be prepared for the risk that the invested amount bears.


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