What Is ULIP?
Unit Linked Insurance Plan or ULIP is a type of Life Insurance policy, which offers you dual benefits of investment and insurance. ULIP offers you an opportunity for wealth creation along with the protection of a life cover. In ULIPs, you invest your money in the financial instruments (equity, debt, or a combination of both). The returns on the investment depend upon the performance of the funds selected by you.
Getting Started with Unit Linked Insurance Plan
It doesn't matter if your age is 20, 35 or 50. Whatever your age, you are sure to have certain life goals and dreams that you hope to fulfil. You may want to start your own business, or perhaps you want to make a down payment on your dream home. Whatever be the reason, to be able to fund your life goals you need corpus. You can use an investment plan such as a Unit Linked Insurance Plan, or ULIP, to help you save up the money required.
Unit Linked Insurance Plans offer a combination of investment opportunities and life insurance. ULIPs are generally considered to be one of the most sought-after insurance offerings.
How Does ULIPs Work?
Although an insurance offering, a ULIP plan also works as a goal-based investment opportunity that has been designed to help you meet your financial goals. Before you invest in one of these plans, you need to understand where your money will be invested.
As with any insurance policy, you will be required to pay a premium for your Unit Linked Insurance Plan. Your premiums paid will be invested in funds as opted by you. If you have a high risk appetite, you can choose to invest in equity funds. On the other hand, if you aren't willing to take too much of a risk, you can put your money in a debt fund. To enjoy the benefits of returns without high risks, people also prefer investing in a combination of both equity and debt funds. Since the investments are made to help you meet your financial goals, you can choose in what kind of funds your money should be invested in.
Insurance companies allow you to switch between funds from time to time as per the terms and conditions specified therein. There is no tax implication on the same and you can decide to switch based on the market movement and investment goals. For example, if a particular fund is underperforming, you may switch to the one that has delivered a better performance. You can also switch from one asset class to another based on your changing life goals. For instance, when you are young at the start of your career, and have lesser responsibilities you can opt for higher risks and invest in equity funds. However, as you move closer to your retirement age, you may opt for debt as they have a low risk.