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Friday, September 11, 2015

5 Facts About ULIPs

Unit Linked Insurance Plans (ULIPs) are hybrid life insurance products that seem to be growing in popularity by the day. These are market linked products where the returns to the investors are directly related to the performance of the funds they invest in.

In this post we take up 5 facts about these smart life insurance products.

1. Unit Linked Insurance Plans combine the advantages of a mutual fund and a term insurance policy. A part of the premium paid by an investor (risk premium) goes towards extending life coverage to him/her. The surplus is invested into a fund as per the choice of the investor; the returns being directly related to the performance of the funds they invest in.

2.Similar to mutual funds, ULIPs pool together premium collections and invest these into the debt and the equity markets. In return the investors are allocated ‘shares of the common pool‘ known as ‘units‘ at the current Net Asset Value (NAV).

Returns from ULIPs are computed as follows: (Closing NAV - Opening NAV) x Units Allocated

3. ULIPs generally offer several fund options to an investor. These include equity funds, debt funds and/or balanced funds. Of these the equity funds carry the greatest downside risk.

4. You can maximise returns from an ULIP by switching between funds. Many ULIPs provide multiple free switches between funds. You also have the option to redirect future premium payments towards any fund of your choice.

5. Unit Linked Insurance Plans typically carry premium allocation charges which cut down your investible surplus. The key to buying a ULIP is selecting one which carries a low premium allocation charge.

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