What is ULIP?

Introduction

In this article I will be writing about the ULIP insurance plan. In our previous articles we have learn about the term insurance or life insurance plans and the endowment insurance plans. ULIP is the one kind of insurance plans which is linked to the investment options. Many people prefer to invest on the ULIP plans because it yields better return. I will explore the advantages of the ULIP insurance plans in details. If you like the article, please subscribe to our future articles here.

Related Articles on ULIP

• Difference between insurance and investment
• SEBI Bans 14 Insurance Companies to sell ULIPs
• Why ULIP’s are not good choice?

What is ULIP?

ULIP stands for Unit Linked Insurance Plans. As we know that insurance is for protecting our life from the any uncertain events like death or accident. The purpose of the normal insurance plan is just protecting the life but not ensuring any savings for the future. The example for the pure insurance plans are term insurance. Many people wanted plan which gives protection also gives the returns for their investment. So, insurance companies come up with the ULIP plan where the premium amount is invested in the stock market and returns better income on the maturity period.

What is the difference between ULIP and Mutual Funds?

In structure both ULIP and Mutual Funds looks similar. But, in objective they are different. Because of the high first-year charges, mutual funds are a better option if you have a five-year horizon. But if you have a horizon of 10 years or more, then ULIPs have an edge. To explain this further a ULIP has high first-year charges towards acquisition (including agents’ commissions). As a result, they find it difficult to outperform mutual funds in the first five years. But in the long-term, ULIP managers have several advantages over mutual fund managers.  Since policyholder premiums come at regular intervals, investments can be planned out more evenly.  Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice.

From October 2009, IRDA has set the maximum fees amount to be levied against the ULIP policies. Which makes the ULIP more compete against the mutual funds.

Consider the following points before choosing the ULIP Policy

• Talk to the agent for more details about the policy. If he guarantee’s any return after ‘N’ years, then you should be careful. Keep in mind that your money is invested in the market. The returns are purely depends on the market performance.
• Buy the policy with minimum of 10 years. In the long term, ULIP policies give very good returns.
• If possible, try to analyze the market condition before staring the investment.
• Learn the fundamentals of ULIP policies.
• Don’t buy the ULIP just for the tax savings purpose.
• Compare the different ULIP policies in the market.

Summary

In this article I have explained about the ULIP plan and the purpose of the ULIP. In my next article I will be writing about the different ULIP plans and how to choose the better plans amount the many players in the market. Thank you for reading this article!!

You can subscribe to our future articles here.

Related posts:

1. What is Endowment Insurance Plan?
2. Learn About Mutual Funds
3. Difference between Investment and Insurance
4. What is Life Insurance Riders?
5. Top 5 rules to reduce the Insurance Premium