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: A ULIP was something that caught the world's fancy in the 1960s when it originated in Britain. Soon after, they became some of the most popular insurance products in Europe and then the US. India, prior to opening up the insurance sector, had no experience with these products and have only recently been exposed to ULIPs.
“ULIPs provide for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as net asset value (NAV). ULIP is a financial product that offers you life insurance as well as an investment like a mutual fund. Part of the premium you pay goes towards the sum assured (amount you get in a life insurance policy) and the balance will be invested in whichever investments you desire: equity, fixed-return or a mixture of both. Investments in ULIP are covered under Section 80C of the Income Tax Act.
In a ULIP, a certain part of the premium is invested in listed equities/debt funds/bonds, and the balance is used to provide for life insurance and fund management expenses. Yields earned on investments ie, the value of the investment or the sum assured, whichever is higher, is paid to the insured or nominee. This varies from company to company ie, some insurance companies pay the value of the investment in addition to the sum assured.
Demystifying
“Traditional insurance products have a fixed contribution and fixed return as well. This was till the people stated the concept of unbundled products. This led to the development of unit-linked insurance plans which sense then moved into many other areas like mixed products. If a person is looking for both cover and savings both then they can choose to go in for a ULIP which offers this option. Unbundling is now possible and so if I have a risk appetite then I can fix my insurance component at, say, five times the premium and use the rest of the money for investment purposes. It was actually policy holders who initially wanted insurance companies to manage a portion of their investments as well so as to keep it safe and growing. In other products like endowment or...
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