Unit Linked Insurance Plans (ULIP) are life insurance policies especially designed for wealth creation and life protection, thus, offering the dual benefits of investment-cum-protection.
The premium payments are divided into two parts – one serves the purpose of life cover for the policyholder, while the other part is diverted towards a pool of funds. These funds are then invested in debt or equity mutual fund investments, or a mix of both.
Unit Linked Insurance Plans ensures policyholders the flexibility to select the amount of life cover, as per their objectives.
ULIPs generally provides a life cover that is 10 times the annual premium payment.
Unit Linked Insurance Plans are classified under Debt Funds, Equity Funds and Balanced Funds, which is a blend of both.
For debt funds, the investments are made in government bonds, while for equity funds, the investments are made towards company shares. As a result, for balanced funds, the total fund is equally divided between equity and debt investment instruments.
As the portfolio investments in a variety of investment instruments, policyholders of life insurance plans can select their investments as per their objectives and risk appetites. Equity funds generate high returns over a short-term and, therefore, are best suited for investors with high risk appetites. On the other hand, the returns on debt funds are not as high as in equity funds, but act as a steady and reliable source of income over the long term. Hence, they meet the investment goals of investors with low-risk appetites. Investors with medium risk-appetites can focus on investments in balanced funds.
ULIPs offer the benefit of withdrawing a specific part of the money invested in the life insurance plan during unpredicted personal and medical emergencies.
ULIPs are tailor-made to meet the long-term financial goals of policyholders like child’s higher education and marriage, retirement plans, etc.
Policyholders are eligible for tax benefits under Sections 80C, 80CCC and 10(10D) of the Income Tax Act, 1961.