What Exactly Are Unit Linked Insurance Plans (ulips) ?

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In last few years ULIP is more popular among individuals rather than a term plan or an endowment plan

. The people who have chosen term or endowment plan are switching to Ulips. Therefore it is very important to understand how ULIPs work

ULIP is an abbreviation of Unit Linked Insurance Policy.

Definition- ULIP is a combination of insurance & investments. Unlike traditional subject to the risk factors where the risk is borne by the policyholder, the investment risk is related with the stock markets & accordingly the NAVs of the units go up & down depending upon the funds performance & the factors affecting the capital market.

Different funds offered by ULIP

1. Equity funds (Investing In Companies Stock) : Med High Risk

2. Income, fixed deposits & bond funds (Investing in Government securities & in corporate bonds) : Medium Risk

3. Cash Funds (Investing in cash, bank deposits & money market) : Low Risk

4. Balanced Funds (Combination of equity investment & fixed interest instruments): Medium Risk

Advantages of taking ULIP

Provide life cover.

Tax saving under 80CC.

It also gives you opportunity to invest in stock market.

Gives you the option of long term investment too.

Basic Charges on ULIPs

Premium Allocation Charges- It normally includes initial & renewal expenses apart from commission expenses.

Mortality Charges- This charge is provided for the Cost of Insurance Coverage under the plan. A lot of factors are responsible for mortality charge like age, amount of cover etc.

Fund Management Fees- These are fees levied for management of the funds and are deducted before arriving at the Net Asset Value (NAV)

Policy/Administration Charges- These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.

Surrender Value Charge - A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.

Fund Switching Charges- Limited fund switching charges may be allowed every year.

Service Tax Deduction- Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.

Things to remember before going for a ULIP

Invest for a long term- A long term investment will give you good results.

Be sure about the charges- Make sure about the charges that the company will take from you. There should not be any hidden cost.

Invest at your own risk- Investing in ULIP is also risky, you should check your risk appetite before investing

by: jacksup

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