A unit linked insurance plan (ULIP) is a unique insurance plan that provides the benefits of insurance as well as investment.
In this article, we will explain what a ULIP is and why investing in it can be a good idea.
When an investor invests in a unit linked insurance plan, a part of the premium is allocated for life insurance, and the other part is earmarked for investment instruments like equity or debt funds. It is an insurance policy that offers life cover as well as investment returns. This way, a ULIP can provide substantial returns and financial security to the policyholder.
With the help of a unit linked insurance plan, an investor can earn significant profits and get life insurance cover. Furthermore, he/she is allowed to switch between funds. Though there is limit on switches one can make per year. An investor can also choose where he/she wants to invest based on his/her risk appetite.
Reasons Why Investing in a ULIP Is a Good Idea
- It Provides Life Cover
A ULIP plan is a great option if a person wants to provide his/her family with financial security. This is because a unit linked insurance plan offers life cover. Therefore, if a policyholder meets with an untimely demise, then the insurer will provide his/her beneficiaries with the sum assured.
- It Offers Flexibility
This is another main benefit that a unit linked insurance plan offers. With the help of a ULIP, a policyholder can invest in equity funds, debt funds, etc. based on his/her investment goal and risk appetite. A policyholder is allowed to choose the investment option.
- It Can Offer Substantial Returns
A policyholder can invest the money based on his/her requirements. For example, if a policyholder has a high-risk appetite, then he/she can consider investing in equity funds. Furthermore, a unit linked insurance plan allows a policyholder to switch between funds in order to reap substantial returns.
- It Can Help Meet Long-Term Goals
A ULIP can be a great option for people who want to invest for a longer term. It can help a person meet various long-term goals, such as building a corpus for retirement, accumulating funds for his/her child’s education, etc.
Premium Payments in ULIPs
Premium payments can be made in different ways, such as-
- Regular Payment (Monthly, Semi-Annually, or Annually)
A policyholder is allowed to pay premiums at regular intervals (monthly, semi-annually, or annually).
- Single Premium
If an individual chooses this option, then he/she must pay the entire premium as a lump sum.
- Number of Premium Payment Years
Generally, a policyholder needs to pay premiums during the term. However, there are a few ULIPs that allow the policyholders to select the number of premium-paying years.
There are various investment options. However, choosing the right one can be difficult. An individual needs to keep in mind different factors like investment objective, risk appetite, investment tenure, etc. A ULIP can be extremely beneficial as it provides the benefits of life cover and investment. Furthermore, it can be a great option for people who are planning to invest for a longer term.
