What Are Unit Linked Insurance Plans [ULIPs]


Unit Linked Insurance Plans are Hybrid Insurance Products offered by Life Insurance Companies that attempts to cater to both the ‘Protection’ as well as ‘Investment’ needs of an individual.

In Unit Linked Plans, the corpus (after deducting the necessary mortality and allocation charges) is invested into the capital markets (both fixed income as well as equity) and the investment risks are borne by the investor.

How Do ULIPs Operate? 
ULIPs operate much in the same way as Mutual Funds. The premiums collected, after deducting the Risk Premium and other charges, are ‘pooled’ together and invested into the debt and the equity markets – depending upon the fund chosen by the Investor. 
In return the investors are allocated ‘shares of the common pool’ known as ‘units’ at the current Net Asset Value (NAV). 
Unit-holders have the option of investing their corpus into a Fund of their choice. The various fund options include debt, equity or a mix of both in varying proportions. 
The investors are also allowed the freedom of switching between funds to maximise returns from their investments. 
The NAV is calculated based on the market value of the investments and declared on a daily basis. The current day NAV per unit multiplied by the units held signify the total value of the investment as far an individual investor is concerned. 
The NAV, on the opening day, is generally fixed at Rs. 10 per unit. Thus, Rs. 20000 invested on day one will fetch an investor 2000 units of the scheme. 
This Net Asset Value will rise or fall based on the overall performance of the pool of investments. 

The following Unit Links Insurance Plans are generally available to an Investor:

Single premium plans requiring a single lump sum premium payment at the beginning of the policy term.

Multiple/Regular plans requiring an investor to a predetermined premium at regular intervals.

Maturity/Withdrawal Options
Similar to other Insurance products, Unit Linked Insurance Plans, come with a fixed policy term – post with the Policy matures. Investors are required to select the policy term at the time of taking a new ULIP policy. All ULIP Products come with a minimum lock in period.

 Upon Maturity, the policy holder receives the value of his investment which is equal to the NAV per unit as on the Maturity Date multiplied by the units held by the policy holder as on that date.

A policy holder can also redeem his units in the ULIP Plan at the current NAV post the expiry of the lock in period. 

Option To Top-Up. 

In an Unit Linked Insurance Plan, the Investor is given an option to top-up i.e invest an amount over and above the premium payable. 


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