Finance @ Knowledge Zone


ULIP: Investment & Insurance

- by A. Sathish Kumar *

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Part - II

ULIP - Key Features

    1. Premiums paid can be single, regular or variable. The payment period too can be regular or variable. The risk cover can be increased or decreased.

    2. As in all insurance policies, the risk charge (mortality rate) varies with age.

    3. The maturity benefit is not typically a fixed amount and the maturity period can be advanced or extended.


    4. Investments can be made in gilt funds, balanced funds, money market funds, growth funds or bonds.

    5. The policyholder can switch between schemes, for instance, balanced to debt or gilt to equity, etc.

    6. The maturity benefit is the net asset value of the units.

    7. The costs in ULIP are higher because there is a life insurance component in it as well, in addition to the investment component.

    8. Insurance companies have the discretion to decide on their investment portfolios.

    9. They are simple, clear, and easy to understand.

    10. Being transparent the policyholder gets the entire episode on the performance of his fund.

    11. Lead to an efficient utilisation of capital.

    12. ULIP products are exempted from tax and they provide life insurance.

    13. Provides capital appreciation.

    14. Investor gets an option to choose among debt, balanced and equity funds.

Cover-Plus

In a sense, unit-linked plans work like endowment plans-they combine insurance with investment. A part of the premium you pay goes towards buying you insurance cover and what's left of the rest (after deducting a host of charges-from fund management to administration expenses) is invested in equity and debt instruments. The investment component of the premium is converted into units-much like mutual fund units, to be bought and sold at the prevailing Net Asset Value (NAV); your premiums are unitised through the policy tenure, typically 15 or 20 years. Investment gains will accrue from an appreciation in the value of your units, and information on this is put out regularly by insurers.

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* Contributed by -
A.Sathish Kumar,
Asst. Professor,
Vivekananda PG College,
Karimnagar (AP).