Ulips-Reach Your Long-Term Goals With Ease

Here is how to benefit from them.

- Manish Jain

A financial instrument that plays its role in creating wealth for achieving the long term goals and also providing protection against any untimely demise of the bread earner of the family is best met through unit-linked insurance plan (Ulip). A Ulip is a bundled product that combines a life cover with an investment plan. It is all the more important for an investor to understand his financial goals and horizon of investment in order to make an informed investment decision of buying Ulip. It best suits an investor who is not able to keep protection and investment needs separate.

In other kinds of policies, you have to specify your life cover need and, for that, you will have to pay a specific premium. It is not so in Ulips. For a particular annual premium amount, you can decide how much insurance you want, within a certain range. After costs for insuring you for that amount are deducted, the rest of the funds are invested. So, for the same premium amount, different people can have different insurance covers.

How is premium adjusted

Of the premium paid, a part of the premium goes towards the mortality charges, that is, the cost of buying a life cover.

The premium paid by you, less any charges to be deducted, is used to buy units in the fund selected by you at that day’s unit price, or NAV. So more units are added to the your account each time you pay a premium. The higher the NAV on a day, the fewer the units you get. Your fund value on a day = number of units you have x NAV of the units on that day.

The rest, and after deducting costs, gets invested in different fund options where the choices range from 100 per cent debt market products to 100 per cent equity, with varying mixes of both in between.

On survival or on death