UNIT-linked insurance plan (Ulip) is one of the most transparent, flexible, long-term, goal-based retail investment products available today. It not only satisfies an investor's objective of protection but also adequately focuses on wealth creation. A part of the premium paid goes towards providing life cover and the remaining is invested in fund(s) selected by the policyholder.
Ulips offer a range of fund options with different debt and equity exposure, giving the policyholder a choice to select amongst them, depending upon their investment objectives and risk appetite.
Ulips provide a convenient one-stop solution to individuals to fulfill their long term financial goals, be it their child's education/marriage, wealth creation or even creating a retirement kitty. Since their advent, Ulips have been constantly evolving to enhance the ultimate value enjoyed by the policyholders by reducing charges, enhancing disclosures and providing unique features like capital protection, return guarantees and the option to manage asset allocation on behalf of the policyholder by offering Life Cycle Funds, etc.
With a minimum lock-in, premium payment term of five years and no partial withdrawals are allowed during this period, Ulips encourage long-term investments. As the capital market is inherently volatile, a long-term investment horizon reduces the volatility and leads to a consistent maximization of wealth. In other words, Ulips result in a smoother journey towards the achievement of one's investment objectives.
Ulips provide policyholders the flexibility to manage their life insurance policies, depending on their changing needs. They can select their own asset allocation by choosing fund(s) options, redirect future premiums to different fund(s) and switch between funds in the light of changing risk appetite and investment objectives. They can also reduce the premium amount to a certain extent and give topups (extra amount over and above the regular premium payments).
Ulips offer a very high degree of transparency as all the charges, funds' NAVs (on a daily basis), portfolio, performance, assets under management, asset allocation, rating and maturity profile are stated very clearly, usually on a monthly basis.
There is sufficient liquidity in a Ulip as a policyholder is allowed partial withdrawals and can avail loans against the Ulip.
Ulips diversify investments and diffuse risk over the long-term, by offering funds with different asset allocations. Else, one would require the expertise to create a basket of products to meet such requirements, with periodic alterations to meet changing needs.
Since September 2010, Ulips offer a minimum insurance cover of 10 times the annual premium for a policyholder below 45 years and 7 times for those who are 45 years and above against the earlier requirement of 5 times. Along with enhanced risk cover, the charges have also been reduced. The charges are now evenly distributed in the initial five years. Further, the difference between the gross and net yields and the discontinuance charges, which need to be paid by policyholders on premature exit, has also been capped.
Lastly, one important reason to invest in a product with both protection and investment benefits is the mere ease of operations. Prior to Ulips, different goals of an individual were addressed with different products. By having a single policy an individual will be able to keep proper track of his investments and seek professional advice as and when required.
