When you visualise your future, what do you see? Isn’t it nice to have a happy family, educated children, and a financially stable and secure life? A Unit Linked Insurance Plan is a financial product worth considering if you want to guarantee your future while building your wealth. Policyholders who purchase a ULIP policy benefit from insurance coverage and investment profits under a single program.
Let’s look at the many sorts of ULIP investments.
What is a ULIP?
A Unit Linked Insurance Plan (ULIP) is a hybrid insurance plan that combines insurance coverage benefits with the ability to generate wealth via investments. The policyholder’s premium is used to pay for insurance coverage, with the remainder going to a fund that invests in asset classes based on the ULIP policy chosen by the policyholder. It is a long-term strategy determined depending on the policyholder’s financial goals and risk tolerance.
How ULIPs work?
In Unit Linked Insurance Plan, one portion of the paid premium secures the policyholder’s life cover. In contrast, the other portion of the paid premium is invested in various sorts of fund alternatives.
The fund alternatives are available to investors based on their wealth-building objectives and risk tolerance. In the case of the policyholder’s untimely and sad death, the selected beneficiaries will get the insurance and/or the fund value, whichever is greater, depending on the kind of Unit Linked Insurance Plan.
The insurance firm, like mutual funds, will issue ‘Units’ based on the proportion of the investor’s money invested in the market. This unit represents the investment and is assigned a NAV, which is assessed and declared daily.
Here’s an example to help you understand how these plans work:
Akash, a 30-year-old male, makes a 20-year investment in a Unit Linked Insurance Plan with an annual premium of Rs. 50,000. The following are the policy essentials:
Initial Sum Assured = Rs. 5,00,000 (yearly premium x 10)
Annual Administration and other charges = Rs. 2500
Total Annual Investment = Rs. 47,500
Initial NAV Value = Rs. 10
Units purchased = (47500/10) = 4750
Types Of ULIP Investments
Insurance firms provide a variety of funds from which to pick depending on investment objectives, time horizon, and risk profile. Each fund has a different level of risk and, as a result, provides a varying level of return.
The following are examples of common types of investment alternatives, along with their risk characteristics:
Income, Fixed Interest, and Bond Funds: These are medium risk funds that invest in debt instruments such as government securities, corporate bonds, and other low-risk fixed income products. While the returns are smaller than those of equities, the risk is also lower. These funds provide somewhat greater returns than cash funds.
These Unit Linked Insurance Plan funds are considered medium to high-risk since they primarily invest in corporate equities with the goal of capital appreciation. Because these funds invest in the stock market, their performance is influenced by the stock market’s highs and lows.
Money Market Funds are another name for them. Cash funds are low-risk investment vehicles that invest in cash, bank deposits, and money market securities.
Balanced or Hybrid Funds
They are medium-risk investments that blend equities and fixed-income investments. These hybrid funds provide enough exposure to both the stock market and debt securities. Safer investments in debt offset the risk inherent in a stock.
These sorts of Unit Linked Insurance Plans are ideal for accomplishing short-term financial objectives since they invest customers’ cash in highly liquid money market instruments such as treasury bills, call money, and certificates of deposit (CD).
In comparison to other Unit Linked Insurance Plans, the maturity time for these funds is quite short, ranging from a few weeks to months. Most of these ULIP investments have high credit ratings, making them a secure investment option for those with a low-risk tolerance.
Key Features of ULIP Investments
Unit Linked Insurance Plans are packed with a range of features to help investors ensure fiscal security against any future adversities, enjoy tax benefits, and double their financial corpus by a factor of ten.
No surprise, Unit Linked Insurance Plans continue to be a popular investment option for both novice and seasoned investors. Here’s a quick review of some of the important aspects of ULIP investment that give them an advantage over other investment options:
Funds for Crucial Spendings in Life
A significant quantity of money is necessary at various periods of life. They may be required for a person’s business, home construction, or child’s marriage, among other things.
The ability to withdraw cash in phases allows you access to much-needed funds at vital periods to address urgent needs. Investors should utilise the best ULIP investment plans to wisely prepare their future financial needs.
Financial Security After Retirement
The long-term performance of equities is favourable. As a result, Unit Linked Insurance Plans are a fantastic way to boost the value of one’s retirement portfolio. People in their twenties and early thirties should invest in equity-oriented funds to have enough assets for retirement. With time, one’s assets can be gradually shifted to more cautious debt funds.
The policyholder has a variety of options with Unit Linked Insurance Plans. To meet one’s shifting demands, one might swap between multiple funds. There is also the option to withdraw a portion of the investment, albeit this is subject to additional fees and limitations. You can even invest more funds as a top-up to your monthly premiums. The ULIP NAV is a useful tool for tracking investments and ensuring that investors remain enrolled in the best ULIP investment plan.
Protecting the Child’s Future
Unit Linked Insurance Plan allows you to invest in market-linked funds to earn greater market-type returns and build a corpus that may be utilised to ensure your child’s future.
The money can be used for a child’s education, marriage, or other purposes. Parents may readily monitor the ULIP NAV to ensure that the returns given are adequate for future needs.
Wrapping It Up
Finally, ULIPs are long-term investments in which “time in the market is better than timing the market.” You can ride out market cycles and guarantee your investments earn returns by staying invested for an extended length of time, making ULIP investments a balanced alternative for attaining your financial goals.