How Ulips can work to your advantage: Know the fund options and transparency of charges

Unit linked insurance plan (Ulip) is an investment-linked life insurance plan that combines investment and protection.

- Manish Jain

The premiums that you pay provide you not only with life insurance cover but, part of the premiums will also be invested in specific investment funds of your choice. As a policyholder, you can choose how to allocate your insurance premiums towards protection and investment. The insurance coverage provided would include death benefit, disability and critical illness. The investment fund is divided into units of equal value. The prices of these units are published daily in the newspapers for you to track the value of your investments.

A Ulip is essentially a bundled product that combines a life cover with an investment plan, but the investment is not as a guaranteed money back or endowment lump sum but works like a mutual fund. The premiums go towards mortality charges and the rest, and after costs, gets invested in different plans according to the amount of risk you are willing to take. Choices range between zero percent equity full debt marketrelated products to a 100 per cent equity option.

If you survive the policy term, or redeem midway, you get the net asset value multiplied by the number of units you hold. The net asset value, of course, depends on the performance of the corpus that the insurance company manages, just like that of a mutual fund. In case of death, the dependent receives either the sum assured, or the value of the fund, whichever is higher, or both.

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