What is Unit Linked Insurance Plan – Life Insurance & Investment – MY PRIVATE JOBS

What is Unit Linked Insurance Plan – Life Insurance & Investment

When you think of investing your earned into something that can give you good returns then the first thought that you have is investing in conventional instruments like fixed deposits or gold.

However, you might want to check out more modern financial tools like ULIP which offer better returns than the conventional methods and also offer insurance coverage than the normal or the conventional methods.

What is Unit Linked Insurance Plan (ULIP)?

A unit linked insurance plan or ULIP is a kind of insurance offering for life insurance as well as investment serving both the purposes of giving financial coverage to your family in case of any unfortunate event where it requires a good sum of money, as well as providing good investment returns to fulfill your desired goals.

What is Unit Linked Insurance Plan - Life Insurance & Investment

A unit linked insurance plan or ulip serves as a great tool to get security and manage your finances.

How Does Unit Linked Insurance Plan (ULIP) Work?

So the next obvious question that comes to mind is how does ULIP work, well when you pay a premium for your unit linked insurance plan?

A part of the premium is utilized for your security while the other part is used for investing in certain funds wherein it helps in developing your wealth the investment part from your premium will be used in certain units which the policy holder selects according to their preference requirement and financial plans.

Difference Between Unit Linked Insurance Plan (ULIP) & Term Insurance Plan

Now let’s talk about the difference between a traditional term insurance plan. Here is a table showing the difference between Term Insurance and the United Linked Insurance Plan (ULIP).

FeatureTerm InsuranceULIP
Savings ComponentNo savings componentCombines savings and protection under the same policy
AffordabilityMore cost-effectiveHigher premium rates compared to term insurance
Surrender ValueNo surrender valueSurrender value after the lock-in period
Maturity BenefitNo maturity benefitMaturity benefit in addition to life cover
Investment ComponentNo investment componentInvestment component with market-linked funds
FlexibilityNo flexibilityFlexibility to switch between funds and change investment strategy
Risk InvolvedNo riskHigh risk due to market-linked investments
Premium ValueHigh premium valueLower premium value compared to term insurance
Maturity BenefitNo maturity benefitMaturity benefits in addition to life cover
TrackabilityNo option to track itMaturity benefits in addition to life cover
Premium Depends onDepends on the coverage of the planDepends on the sum assured and investment strategy
Types of PoliciesOffers a sum assured to the nominee in the unfortunate event of the policyholder’s death during the policy termOffers life insurance as well as investment opportunities with market-beating maturity benefits

A Traditional term insurance plan tends to be opaque you have no clear idea where your funds are allocated, and you may also not have proper knowledge of the returns that you receive or the distribution of your premium amount.

Difference Between Unit Linked Insurance Plan (ULIP) & Term Insurance Plan

On the other hand, when you have a Unit Linked Insurance Plan or (ULIP) in your name you are able to enjoy full clarity in your ULIP policy document you find all the details about your policy such as the following:

  • Policy Administration Charges
  • Policy Allocation
  • Charges Policy
  • Redemption Charges
  • Policy Switching Charges
  • Policy Returns and more

Difference Between Unit Linked Insurance Plan & Mutual Funds

Now let’s talk about the difference between Mutual Funds and ULIP in terms of investment and which one is better. Here is a table showing the difference between Mutual Funds and the United Linked Insurance Plan (ULIP).

FeatureULIPsMutual Funds
PurposeCombines investment with life insurance coverageFocuses on creating long-term wealth
Regulatory BodyIRDAI (Insurance Regulatory and Development Authority of India)SEBI (Securities and Exchange Board of India)
Duration/Policy TermLong term with a lock-in period of 5 yearsAvailable for all horizons (short, medium, and long term) with no lock-in period except for specific funds
Long-term with a lock-in period of 5 yearsEligible for deduction up to Rs 1.5 lakh under Section 80COnly Equity-Linked Savings Scheme (ELSS) funds qualify for tax deductions
Management ExpensesMaximum 1.35%Maximum 2.5%
Payment MethodRegular premium payments or lump sum investmentsSystematic Investment Plan (SIP) or lump sum investments
Low to high risk based on the fund’s investment portfolioLow to high-risk based on the fund’s investment portfolioVaries based on the fund’s investment strategy

Now many people tend to get confused if they should invest in ULIPs or mutual funds the main difference between the two that proves Unit Linked Insurance Plan (ULIP) is a better choice for investment is that mutual funds do not offer insurance cover also all mutual funds.

Mutual Funds do not give you tax deductions whereas all ULIPs provided tax benefits a few years ago.

Unit Linked Insurance Plan (ULIP) popularity had begun to fade as some private life insurers launched certain ULIPs that unnecessarily involved enormous commissions ranging from 60 to 100 of the premiums paid for the first year this introduction of massive commissions led to wrong ways of selling ULIP.

Difference Between Unit Linked Insurance Plan & Mutual Funds

It even led to financial scams but in order to revive the benefits of ULIP the Insurance Regulatory and Development Authority of India introduced new measures to the quality of the ULIP and was brought back again.

They started to cater to the needs of investors looking specifically for long-term growth now the most important question is what you should keep in mind while selecting a plan with digital finance at its best you can compare various life insurance options online including your ULIP.

You can even apply for Unit Linked Insurance Plan (ULIP) online you may also check out some features that come with the new ULIP such as systematic monthly plans systematic withdrawal plans and systematic transfer plans these features assist you in boosting your wealth and planning your retirement funds a Unit Linked Insurance Plan (ULIP) is a good long-term investment that also offers reliable protection to you and your loved ones it is also flexible and gives you an opportunity to satisfy your risk appetite in a relatively safe way however it is always a good idea to consult an expert before investing.

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