Why is Unit-Linked Insurance Plan a Great Investment?
A ULIP, unit linked insurance plan is basically the combination of an insurance policy and investment. In terms of investment the resulting inflation over the years decreases the value of your returns. For instance when you make an investment you are promised a certain return at the maturity of your investment and it looks attractive at that time; however, when the amount is received on maturity it looks small owing to inflation and other economic factors over the years. In order to overcome such issues, the unit linked insurance plan was introduced so that the investors can get good and fair returns on their valuable investments.
Understanding the Principle of Unit Linked Insurance Plan
A portion of the premium or investment which is made by policyholder is used to give insurance coverage to policyholder and the remaining portion of the investment is utilized for debt and equity instruments. The aggregate of the premiums which are collected by insurance company is pooled for investment in variable portions of equity and debt securities which is somewhat similar to the mutual funds. The policy holder has got the option of selecting a personalized investment based on their investment requirements and risk factor. Similar to the mutual funds every policy holder’s ULIP has a specific amount of fund units and each of these have a net asset value also known as NAV, which is declared on a day to day basis.
The NAV is essentially the value which is used as a basis for determining the net rates for returns on ULIP. The value of NAV varies from one ULIP to another plan and also the market conditions as well as the performance of the funds.
There are multiple advantages of unit linked insurance plan for the policy holders. The ULIP provides complete transparency to the investors regarding the manner in which their money is used up and corresponding break-ups such as bonuses, risk cover and investment returns. The unit linked insurance plan provides extreme flexibility in your investments which allows you to execute control on your investment.
You are able to choose the type of risk on your investment such as low, medium or high risk. You also have the option of liquidating your investment and leaving behind only what is essential. ULIP also provides multiple other advantages such as investment benefits, risk cover and tax savings. The ULIP is ideal for those people who are reluctant to participate directly in trading for stock markets.