Finance

How ULIP Works?

Unit-Linked Insurance Plan is a policy that provides an individual with a life cover and an investment opportunity. Unlike other traditional plans, ULIP is a unique policy that enables policyholders to earn high returns by investing in equity or debt funds. Hence, you can financially secure your family in your absence as well as manage your life goals with ULIP. To better understand such a plan, let’s look at how Unit-Linked Insurance Plans work and learn some key features of the policy.

Working of Unit-Linked Insurance Plan

Just like in every insurance policy, you must pay a fixed premium for a set tenure. As ULIP offers a risk cover and an investment component, part of the premium goes towards the ULIP fund and the remaining secures a life cover. The insurance provider enables you to choose the investment fund type based on your risk appetite and future goals. In case you want to opt for moderate risk or invest in balanced funds, ULIPs offer you the option of a fund switch. These switches come with an additional fee after you have utilised the limited number of free switches.

However, you must note that Unit-Linked Insurance Plans have a lock-in period of 5 years. Thus, you avail market-linked returns for the long term while enjoying a risk cover from unfortunate mishaps.

Features of ULIP Policy

Here are some lucrative features of Unit-Linked Insurance Plans that you can avail on purchasing such a policy:

  • Allocation of Investment Funds

You can choose the fund type in ULIP based on how much risk you can afford to take. In case you feel the market shall be highly volatile in the coming times, you can simply switch to hybrid or debt funds to secure your investment. Therefore, your ULIP investment is entirely in your hands. With the help of an online ULIP calculator, you can estimate your returns and allocate the funds accordingly.

  • Partial Withdrawal

Though the ULIP policy comes with a lock-in period, partial withdrawals are allowed after it gets over. Thus, in the event of a financial emergency, you can withdraw from your insurance plan to meet those needs. Some insurers may offer a fixed number of free withdrawals after which you might be charged a fee.

  • Fund Switch

As mentioned earlier, you can switch the investment fund based on your risk appetite. There is a limited number of switches that you can make depending on your insurer. Thus, you can confirm the charges to plan it well to earn lucrative ULIP returns in 10 years.

  • Top-Up Premium Facility

You can opt for a top-up premium option in ULIP where you pay an extra sum over and above the existing premium amount. Such a facility is beneficial if you want your investment returns to increase or want to add to your ULIP insurance component. The top-up facility does not come with any charges, but you can pay only a set amount of the total premium.

With this, you have now understood how ULIPs work and the features of the policy. In order to earn lucrative returns on your investment, it is advised to stay invested in the plan for the long term. By doing this you will allow the corpus to grow to fulfil your life goals. You can easily maintain your Unit-Linked Insurance Plan for the long term by keeping track of the market. Based on the fluctuations, you can choose the fund type and secure your investments. To manage your policy returns and better plan them, make use of the ULIP plan calculator, which is a free online tool.

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