What is ULIP Plan and How it Works?


What is ULIP Plan?

Full form of ULIP is United Linked Insurance Plan, which is one of the most popular insurance plans that offer extra liability, flexibility, and extra services. All ULIP plans allow individuals to invest in a share, stock or bonds along with all important risk-coverage. Understand the ULIP meaning in this way, a small amount of the premium goes to secure life insurance and the rest of the money invested just like equity and debt instruments do. There a wide range of Best ULIP Plans offered by the various financial firm, so each individual has the option to choose a plan based on his investment risk-taking abilities and life coverage.

Besides Protection and saving facilities, investors can also use features like switching between demate to the debt. They can also increase or decrease the level of coverage, add additional riders and income tax benefits during the tenure period of the policy.

Types of ULIP Plans

As per the death benefits, there are broadly classified two types of ULIPs:

  • Type I ULIP: Under this plan, in the event of the death of the policyholder, the sum of assured will be given to the nominee.
  • Type II ULIP: Under this ULIP plan, in the event of the death of the policyholder, the sum of assured an accumulated fund value will be given to the nominee.

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How ULIP Works?

What are ULIP Plans
Working methodology of ULIP is very simple, the premium paid by the policyholders is used to buy units in various funds offered by the Life insurance companies. Then insurer pools money from the policyholders and invests the same in the funds chosen by them. The value of each unit is known as Net Asset Value. And all the investment units will be tracked by the managers. As per the market results, the value of units aggravates or reduce, its effect shows in the NAV.

When policy gets matured, you can redeem the invested amount which depends on the market performance. In case of unpredicted circumstances like the death of the policy, then a sum of assured will be given to the nominee.

Still, you are wondering about, why I should invest in ULIP, then look at the benefits of it:

  • ULIP is a combination of insurance and investment. So that you can provide financial coverage with life coverage for your loved ones.
  • ULIP offers you a switching opportunity so that you can use this feature to move all your funds as per the market status. Along with that, you can choose a debt fund if you are not happy with an investment.
  • Under all ULIPs, if you pay a premium of 1 lakh, you can get an insurance cover up to 10 lakh.
  • ULIP offers decent returns as well as income tax deduction benefit under section 80C.
  • By accessing Top-ups feature the policyholders to increase their investment at any point of time.
  • Along with the investment feature, ULIP Plans offers rider option in which policyholders will get additional coverage like accident, critical illness and death riders.

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