A ULIP is a market-linked insurance plan .It came into play in 1960s and is a financial product serving the purpose of providing life insurance combined with savings at market linked returns .Part of the premium paid goes towards the sum assured, ie the amount you get in a life insurance policy and the rest of the premium is used to invest in a fund that invests money in stocks or bonds. In India the ULPIs are governed by the Insurance Regulatory and Development Authority (IRDA).
ULIPs are distinct from the more familiar ‘with profits’ policies sold by LIC’s. ‘With Profits’ policies are called so because investment gains are distributed to policy holders in form of a bonus announced every year.
The advantages of ULIPs is that – the investor knows exactly what is happening to his money and it allows the investor to choose the assets into which he wants his funds invested ;whereas ‘with profits’ has no transparency and policy holder has a little knowledge of what is happening
ULIPs are similar to mutual funds in structure but their objectives are different. ULIPs have an edge if the investor has a horizon of 10 years or more, because it has high first year charges towards acquisition (including agent’s commission). Today, more than 70% of the new business premium for life insurers comes from ULIPs.
However, one should insure with a brand name that can be trusted to honour its commitment and service according to the requirements. Thus, ULIPs can be termed as a two-in-one plan in temrs of giving an individual the twin benefits of life insurance plus savings.
