When there is an emergency-like situation or any sudden demise of a bread earner in the family, good insurance will always come to the rescue of the family members. Insurance is required, and along with insurance, personal wealth improvement is also required. Not having an investment will result in a decrease in the wealth of an individual. To balance insurance and investment, there is always a Unit-Linked Insurance Plan (ULIP). In this article, we discuss the key aspects related to ULIP and how to use it as an investment for financial security.
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What is a Unit-Linked Insurance Plan (ULIP)?
A Unit-Linked Insurance Plan is a combination of investment and insurance. In this type of insurance plan, you should pay a premium regularly on a monthly or annual basis. A portion of the investment amount is utilized for life insurance coverage, while the other part goes towards investment. The premium amount is invested in equities, debts, or hybrid funds. This combination of investments leads to good returns. It’s important to note that ULIP investments are subject to market risk, and the policyholder will bear the effects of the investment.
Why invest in a Unit-Linked Insurance Plan?
There are various reasons why policyholders should invest in ULIP. The benefits of investment are as follows:
1. Goal-oriented savings
2. Options to choose investment in debt, equity, and balanced funds
3. Customized portfolio creation and add-on services
4. Transparency
5. Flexibility
6. Offers liquidity
ULIP insurance plans are different and transparent. Policyholders can easily access them and get updates related to their investments. They can check the performance of their portfolios whenever they want. Since ULIP investments are goal-oriented savings, they are meant for long-term investments to accomplish goals like child education and retirement. ULIP allows users to find out the tenure, invested amount, and performance of their portfolios. It is a disciplined investment for maximum returns with minimal risk.
ULIPs in the UAE
ULIP insurance plans in the UAE are designed to increase the investment value of your portfolio. You can get insurance coverage and also the investment amount after the tenure. In the UAE, ULIP policy plans are not strictly classified but are generally based on practical application. They are listed as follows:
- Wealth Creation: ULIP investment plan designed for long-term wealth creation for adults with income earnings.
- Child Education: The child Insurance ULIP plan is meant to take care of financial requirements for a child’s education.
- Retirement Plan: ULIP plan where policyholders make payments in service and receive investment returns in a lump sum or monthly installments after retirement.
- Death: The policyholder does not benefit from this plan, but the dependents receive the benefit after the policyholder’s demise. The provisions of death benefits vary based on the chosen plan.
Charges Levied under ULIP
The insurance regulator has capped the charges, and currently, there are four types of charges levied under ULIP:
- Fund Management Charges: Charges deducted towards managing the funds. These charges vary based on the fund and regulatory limits.
- Mortality Charges: Charges paid to the insurer if the policyholder does not live till the policy period. The amount depends on age, occupation, and location.
- Premium Allocation Charges: Initial expenses incurred by the insurance company at the time of issuing the policy, including underwriting, medical expenses, and agent commission.
- Discontinuance Charges or Surrender Charges: Charges levied when premium payments stop. The money in the policyholder’s account is locked initially after the first five years.
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Things to Consider Before Investing in a ULIP Plan
- Select a ULIP plan that provides maximum returns.
- Evaluate your insurance cover to maximize benefits.
- Compare the features and benefits of different ULIP plans.
- Evaluate the performance history of investments from different providers.
- Select a ULIP plan that offers good returns and flexible investment options.
- Investors with high risk can choose equity plans, while others can select debt or hybrid funds.
- Check the claim settlement ratio of service providers.
Takeaway
ULIP investments are best for policyholders with long-term investment goals and those who want insurance coverage. This policy can be started at any age, provided the policyholder does not exceed the age limits. A good investment plan can provide good results in fulfilling financial goals and responsibilities. Individuals with a regular income and those looking to secure their family’s future should consider ULIP investments.