What is Unit Linked Insurance Plan – Life Insurance & Investment
When you think of investing your earned into something that can give you good returns then the first thought that you have is investing in conventional instruments like fixed deposits or gold.
However, you might want to check out more modern financial tools like ULIP which offer better returns than the conventional methods and also offer insurance coverage than the normal or the conventional methods.
What is Unit Linked Insurance Plan (ULIP)?
A unit linked insurance plan or ULIP is a kind of insurance offering for life insurance as well as investment serving both the purposes of giving financial coverage to your family in case of any unfortunate event where it requires a good sum of money, as well as providing good investment returns to fulfill your desired goals.
A unit linked insurance plan or ulip serves as a great tool to get security and manage your finances.
How Does Unit Linked Insurance Plan (ULIP) Work?
So the next obvious question that comes to mind is how does ULIP work, well when you pay a premium for your unit linked insurance plan?
A part of the premium is utilized for your security while the other part is used for investing in certain funds wherein it helps in developing your wealth the investment part from your premium will be used in certain units which the policy holder selects according to their preference requirement and financial plans.
Difference Between Unit Linked Insurance Plan (ULIP) & Term Insurance Plan
Now let’s talk about the difference between a traditional term insurance plan. Here is a table showing the difference between Term Insurance and the United Linked Insurance Plan (ULIP).
| Feature | Term Insurance | ULIP |
|---|---|---|
| Savings Component | No savings component | Combines savings and protection under the same policy |
| Affordability | More cost-effective | Higher premium rates compared to term insurance |
| Surrender Value | No surrender value | Surrender value after the lock-in period |
| Maturity Benefit | No maturity benefit | Maturity benefit in addition to life cover |
| Investment Component | No investment component | Investment component with market-linked funds |
| Flexibility | No flexibility | Flexibility to switch between funds and change investment strategy |
| Risk Involved | No risk | High risk due to market-linked investments |
| Premium Value | High premium value | Lower premium value compared to term insurance |
| Maturity Benefit | No maturity benefit | Maturity benefits in addition to life cover |
| Trackability | No option to track it | Maturity benefits in addition to life cover |
| Premium Depends on | Depends on the coverage of the plan | Depends on the sum assured and investment strategy |
| Types of Policies | Offers a sum assured to the nominee in the unfortunate event of the policyholder’s death during the policy term | Offers life insurance as well as investment opportunities with market-beating maturity benefits |
A Traditional term insurance plan tends to be opaque you have no clear idea where your funds are allocated, and you may also not have proper knowledge of the returns that you receive or the distribution of your premium amount.
On the other hand, when you have a Unit Linked Insurance Plan or (ULIP) in your name you are able to enjoy full clarity in your ULIP policy document you find all the details about your policy such as the following:
- Policy Administration Charges
- Policy Allocation
- Charges Policy
- Redemption Charges
- Policy Switching Charges
- Policy Returns and more
Difference Between Unit Linked Insurance Plan & Mutual Funds
Now let’s talk about the difference between Mutual Funds and ULIP in terms of investment and which one is better. Here is a table showing the difference between Mutual Funds and the United Linked Insurance Plan (ULIP).
| Feature | ULIPs | Mutual Funds |
|---|---|---|
| Purpose | Combines investment with life insurance coverage | Focuses on creating long-term wealth |
| Regulatory Body | IRDAI (Insurance Regulatory and Development Authority of India) | SEBI (Securities and Exchange Board of India) |
| Duration/Policy Term | Long term with a lock-in period of 5 years | Available for all horizons (short, medium, and long term) with no lock-in period except for specific funds |
| Long-term with a lock-in period of 5 years | Eligible for deduction up to Rs 1.5 lakh under Section 80C | Only Equity-Linked Savings Scheme (ELSS) funds qualify for tax deductions |
| Management Expenses | Maximum 1.35% | Maximum 2.5% |
| Payment Method | Regular premium payments or lump sum investments | Systematic Investment Plan (SIP) or lump sum investments |
| Low to high risk based on the fund’s investment portfolio | Low to high-risk based on the fund’s investment portfolio | Varies based on the fund’s investment strategy |
Now many people tend to get confused if they should invest in ULIPs or mutual funds the main difference between the two that proves Unit Linked Insurance Plan (ULIP) is a better choice for investment is that mutual funds do not offer insurance cover also all mutual funds.
Mutual Funds do not give you tax deductions whereas all ULIPs provided tax benefits a few years ago.
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Unit Linked Insurance Plan (ULIP) popularity had begun to fade as some private life insurers launched certain ULIPs that unnecessarily involved enormous commissions ranging from 60 to 100 of the premiums paid for the first year this introduction of massive commissions led to wrong ways of selling ULIP.
It even led to financial scams but in order to revive the benefits of ULIP the Insurance Regulatory and Development Authority of India introduced new measures to the quality of the ULIP and was brought back again.
They started to cater to the needs of investors looking specifically for long-term growth now the most important question is what you should keep in mind while selecting a plan with digital finance at its best you can compare various life insurance options online including your ULIP.
You can even apply for Unit Linked Insurance Plan (ULIP) online you may also check out some features that come with the new ULIP such as systematic monthly plans systematic withdrawal plans and systematic transfer plans these features assist you in boosting your wealth and planning your retirement funds a Unit Linked Insurance Plan (ULIP) is a good long-term investment that also offers reliable protection to you and your loved ones it is also flexible and gives you an opportunity to satisfy your risk appetite in a relatively safe way however it is always a good idea to consult an expert before investing.