What is a ULIP (Unit Liked Insurance Plan) and how does it work?
A ULIP (Unit-linked Insurance Plan) is a type of insurance wherein some portion of your premium is invested in the market and some goes towards your life cover. In this type of insurance, the total sum assured or life cover is relatively lesser than pure term insurance plan. However, the insured gets a return on the funds invested in the insurance. These returns are linked to the market and the investor/insured person is given an option to choose his investment plan i.e. debt based/ equity based depending on his/her risk appetite.
It works similar to that of mutual funds wherein a pool of money is invested in equity/debt or a combination depending on the risk appetite of investor. It also has NAV that keeps fluctuating as per market.
A ULIP or a Unit-linked Insurance Plan is a hybrid product which provides insurance and investment to its investors. The policyholder gets financial protection with the insurance cover and at the same time, since a part of the premium paid is channelled into market-linked products, one gets to save for long-term goals. ULIPs allow you to determine the amount you want to invest, and the amount which stays as the protective component. What’s more, being an insurance product, ULIPs come with tax benefits under Section 80C of the Income Tax Act. Unlike earlier, ULIP charges have been changed and limits have been set. So, charges for ULIPs are quite reasonable today. Read these blog posts for more information - https://blog.bankbazaar.com/ulips-vs-mutual-funds-whats-the-best-option-for-you/ and https://blog.bankbazaar.com/ulip-should-you-consider-investing-or-not/.