How Does the Unit-Linked Plan Work?

Unit-Linked Insurance Plan, popularly known as ULIPs are one of the best methods of making investment along with a life cover insurance policy. They allow you to invest your money in various equity or debt funds based on your capability of taking risks. 

It is this aspect of the ULIPs that drew a multitude of people towards their purchase. 

How Does a ULIP Work?

• Unit-Linked Plans offers you the opportunity to enter the capital market. Firstly, you need to select the suitable policy term, assured sum, premium amount, and also the frequency of the premium payment that matches your financial position and savings needs. 
• Some portion of the premium is used for providing the insurance coverage. 
• The insurer gathers the money contributed by various policyholders and invests it in various financial institutions. Therefore, the larger portion of their premium is invested in equity or debt funds as per the wish of the policyholder.
• The total money invested is divided into various units. Each unit is attributed with a specific face value. 
• The number of units a person gets is determined by the amount of money he/ she invests.
• Net Asset Value(NAV) is the value of these units at any particular point of time. 
•  So, it is clearly understood that the money invested in the funds determine the value of your policy. You can expect high returns when you keep your investments for a longer period. 
• According to the IRDAI, the lock in period for the ULIPs is 5 years. That is, the policyholder cannot withdraw or liquidate the accumulated value of funds until the completion of the first 5 years.
• The policyholder receives the maturity benefit according to the terms and conditions at the end of the ULIPs term.
• Incase if any unforeseen incident happens to the policyholder, his/ her nominees will get the sum assured, if the event happens within 5 years of taking the policy or they'll get the fund value or the sum assured, whichever is higher, if such incident happens between 5 to 10 years of taking the Policy. 
• If anything happens to the policyholder after 10 years, then the nominees are addressed to take both the sum assured and the fund value. In the best case, if the policyholder survives throughout the period, he is entitled only with the fund value at the end of the ULIP but he doesn't gain the sum assured.
• If you partially withdraw from the corpus bound to the basic terms and conditions of the policy, the corresponding amount of units is sold by the company. 

Final Note

After having a clear knowledge on the working of the ULIPs, you can make good decisions towards the path of your investments. You also have the liberty to switch your investments from equity to debt funds and vice versa. You can transfer the units fully or partially between the available fund options within one plan. It is a great decision to hold the plan for a long term because it could compensate for the effect of market fluctuations. The ULIPs help you in achieving your long term goals. 

Also read - Key Features of Unit-Linked Insurance Plans Offered By Exide Life

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.