Good financial planning must be aimed at strategic investments, insurance and savings. There are several types of investment and insurance plans available today. But a unit-linked insurance plan offers you insurance and investment under a single policy. Let’s find out more about ULIP and how it works.

 

What is a Unit-Linked Insurance Plan?

 

Unit linked insurance plan is a product that offers insurance coverage along with investment avenues. With financial protection for your loved ones in your absence, a ULIP allows wealth creation. Also, if you do not have relevant market experience or time to manage your investment portfolios, a ULIP can be a good option. Thus, a ULIP offers investment, insurance and savings for the future under a single plan.

 

How Does a ULIP Work?

 

Life insurance works on the payment of premiums. The premiums you pay are used to offer financial protection to your family in case of an eventuality. In a ULIP, the similar premium is divided into two parts. One part of the premium goes towards the life insurance plan, while the remaining portion is invested in the financial market. The market instruments can be equity, debt or a combination of both. Before ULIPs, individuals had to invest either in mutual funds or on their own. But with a unit-linked insurance plan, there is no need to manage investments separately for insurance and stock market investment. This is how a ULIP works:

 

• You can pay the ULIP premiums in a lump sum or monthly/quarterly/ semi-annual/annual periodic payments.
• The insurance company appoints fund managers who pool the funds of all policyholders for investment in the financial market.
• The insurer divides the investment corpus into units assigning a face value to each.
• The value of a unit is known as the Net Asset Value, which is assigned to you based on your investment.
• The maturity benefit is offered at the end of the plan tenure.
• The increase in the NAV of the units is used to calculate the capital gains during the policy term.
  
  

Features of Unit-Linked Insurance Plan

 

A unit-linked plan is an insurance cum investment product that offers some unique features. They are as follows:

 

• Switching between funds
  
  

  A ULIP plan allows you to choose between equity funds, debt funds or a diversified portfolio according to your needs and risk appetite. The choice of funds is not permanent, and you can switch between them whenever you want. So, if your risk appetite grows and you wish to invest more in equity, you can switch between debt to equity and accumulate more wealth.

   

• Top-up benefit
  
  

  Top-ups are the increase in premium payments under a ULIP. Market investments allow you to generate high returns. You can use the surplus funds to invest more in the financial market by increasing the premium, thus enhancing your wealth corpus.

   

• Partial withdrawal
  
  

  Unit-linked insurance plans offer the advantage of partial withdrawals after a lock-in period of 5 years. This facility is not given in regular life insurance plans. However, the amount and charges of withdrawal may vary according to the terms and conditions of the ULIP.
  
  

 

What is the Benefit of Unit-Linked Insurance Plans?

 

 

ULIP investment offers a range of benefits that include:

 

• Allows planning for future goals
  
  

  ULIP insurance is a perfect financial planning instrument offering the advantage of savings, investment and life cover. By investing in a ULIP, you can plan for long-term goals such as retirement planning, wealth creation, education or wedding expenses. Not just this, ULIP allows you to financially secure your loved ones after you.

   

• Helps diversification of investment portfolio
  
  

  ULIP investment allows you to choose between the fund options according to your needs and risk-taking capacity. You can incline your portfolio towards equity if you have a high-risk appetite. But if you are risk-averse, you can choose more fixed-income assets. The diversification of assets allows you to take advantage of market opportunities to enhance your investment corpus

   

• Offers flexibility of investment
  
  

  The best part of the ULIP plan is the feature of switches between funds. You can freely switch between equity and debt according to market volatility or risk appetite. Apart from the freedom to choose between market-linked instruments, a ULIP allows you to increase your premium amount with the help of surplus funds. Thus, a ULIP offers a high degree of flexibility in investment type and amount.

   

• Offers liquidity
  
  

  An investment is futile if it doesn’t help you in times of need. However, a unit-linked policy allows you to make partial withdrawals to meet financial needs. After a lock-in period of 5 years, you can withdraw a portion of the fund according to the terms and conditions of the plan.

   

• Offers tax^* benefits
  
  

  Unit-linked plans provide tax* benefits under the Income Tax* Act, 1961, where the premiums you pay and returns you earn are tax*-exempt under Section 80C and Section 10(10D) of the act.
  
  

   

Things to Consider Before Investment in ULIP

 

Before buying a ULIP plan, you must consider the following aspects to make an informed decision:

 

• Long-term financial goals and needs
  
• Your risk appetite
  
• The features and benefits of ULIP
  
• Fund options available
  
• Policy charges and terms
  
• Scope of flexibility to switch between funds
  
• Premium payment options
  
• Insurance coverage
  
• Claim settlement ratio of the insurance company
  
  

Conclusion

 

Now you know the unit-linked insurance plan meaning, features and benefits. With the creation of wealth, a ULIP allows you to protect your loved ones’ financial interests with you and after you. The investment-linked plan helps fulfil life goals and dreams along with retirement planning. So, what could be better than a ULIP wealth investment plan if you want life insurance and investment with no hassle of management of premiums.

 

You can choose from multiple life insurance plans to meet your financial needs. But for the right policy advice, tailor-made insurance plans and an easy claim settlement process, you can choose the Tata AIA life insurance policy and secure your financial future. So, buy suitable life insurance with Tata AIA Life now.

L&C/Advt/2022/Jul/1690