Life is uncertain and unpredictable; therefore, it is important to secure the financial future of your loved ones. Numerous investment instruments are available in the market. However, it is advisable to invest your money in Unit-Linked Insurance Plan (ULIP). It is because ULIP offers various benefits and significantly high returns when compared to other investment options. However, before we speak about the different terms associated with this investment alternative, let us first understand what is ULIP.
ULIP is a one-of-its-kind insurance policy, as it offers the dual benefits of life insurance and investment. The insurer invests part of the premium in the financial markets. Here, you can invest in equity, debt, or both funds according to your risk-taking appetite. ULIP insurance comes with a mandatory lock-in tenure of five years, which helps you inculcate a habit of savings. Another investor-friendly highlight of ULIP is that it lets you switch from one fund to another. So, you can control your investments efficiently and make the most of them. Additionally, ULIP offers tax benefits under Section 80C and Section 10(10D) of the Income Tax Act 1961.
Now, when you know about the main offerings of ULIP, it is also vital to learn about the different terms associated with it before investing in one. Here is a list of some terminologies related to this instrument:
- Fund value
In ULIP, you have the opportunity to choose from a variety of funds, Here, the fund value refers to the total worth of the units that you own.
- Sum assured
The sum assured is one of the most pivotal components of a ULIP investment. It is the amount the nominee of the policy will receive on the policyholder’s demise or the insured will receive if he outlives the ULIP’s duration.
ULIP allows you to partially withdraw some funds to meet any monetary emergency after the mandatory lock-in period of five years and before the maturity.
- Payment choice
While purchasing a ULIP policy, you have an option to pay the premium in a one-time lump sum or opt for a regular payment plan where you can pay this amount in monthly, quarterly, semi-annually, or annual intervals.
- Maturity benefits
If you survive through the policy tenure, the insurer will pay you the maturity benefits.
- Death benefit
In case something unfortunate happens to you within the policy’s tenure, the insurer will pay the death benefit to your nominee.
- Fund switching
ULIP insurance offers the flexibility of shifting your investments from one fund to another. Here, you can switch from equity to debt fund or vice-versa based on the performance of the market. If the market is at its peak, you can move your investments from debt to equity funds to earn higher returns. On the other hand, if the market is going through a rough phase, you can transfer your investments from equity to debt funds. So,with this feature, you can maximize the returns on investment,.
- ULIP charges
ULIP investment has numerous charges like premium allocation charges, fund management charges, policy administration charges, discontinuation charges, and mortality charges, among other costs.Even though the underwriting cost of ULIP is more, the returns offered by this instrument are significantly higher than almost all the other alternatives.
If you wish to build a large corpus in the long run, invest in ULIP with a long-term perspective to grow your wealth with the power of compounding. While investing consider aspects like your risk-taking capability and financial aspirations and then make an informed decision.