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ULIP Premiums: How Is Your Money Actually Invested?

Jun 14, 2018 | 2 years ago | Read Time: 2 minutes | By iKnowledge Team

A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that give investors both investment and insurance in one plan.

An insurance policy provides financial coverage to your loved ones against any unforeseen event. A ULIP gives you the benefit of investment for your future and a financial cover. On investing in a ULIP, a portion of your premium is allocated towards for the insurance cover while the rest is invested in the market.

These type of investment plans are ideal if you want to retire with a corpus. Let us understand where the premium is invested in such investment plans:

  • The entire premium isn’t used for either buying market-linked units or towards life insurance.
  • The part of the premium for buying the units is determined after providing for various charges, fees, and deductions
  • Some ULIPs allow you a more conservative approach, while other plans allow you a more aggressive approach.
  • Usually, the part premium used to purchase the units after deductions is higher than that used towards life insurance premium.

Unlike other investment plans, most of the ULIP’s allow you to start investing with as little as Rs.2000 per month.

Example:

  • Say you pay an annual premium of Rs. 25000.
  • The Sum Assured offered will be 10 times of the annualised premium, which in this case is equal to Rs.2,50,000
  • You can choose the funds you wish to stay invested in basis your risk appetite
  • Units will be assigned to you basis the Net Asset Value (N.A.V.) of the fund on that day.

Scenario 1: You meet with an unfortunate event:

  • Your future premiums are waived.
  • Your family gets the sum assured
  • Post the policy matures, your nominee will also get the returns from your market-linked units.

Scenario 2: Your policy matures:

  • You get the returns from your market-linked units

To sum it up

The premium in a ULIP is usually divided between equity, money-market instruments and premium towards life insurance.

Advt. no.: IA/May 2018/4032

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