Unit Linked Insurance Plan

Traditional insurance provides life cover while mutual funds provide market investments sans life cover. Here is a scheme that gives you the best of both! ULIP or Unit Linked Insurance Plan has become a popular retirement planning option today. ULIP comes under Section 80C in Indian Income Tax scheme. The premiums paid on ULIP and the maturity proceeds are exempt from tax. ULIP can be successfully planned to finance children's higher education and marriage.

Advantages of ULIP

Life insurance has always been a popular long-term financial investment for most. In the regular insurance policies, the premiums are invested in government securities. With ULIP the premiums paid are invested in stocks. The cash value of the ULIP varies according to the current net asset value of the investments made.

This type of investment is a bridge between traditional insurance and market investments. So the investor gets life insurance and savings. In many ways, a ULIP functions much like a mutual fund - premiums are converted into units and net asset value is declared. In case of any unforeseen eventuality, the insured person gets the sum assured or corpus amount, whichever is higher.

The value of your ULIP hinges on the performance of the fund into which your premiums have been invested. The investor can choose how his ULIP premiums are to be invested. If you are willing to take more risks in the stock market, you can opt for aggressive ULIP where more than 80% is invested in equities. If you prefer to be conservative, a larger proportion is invested in debt funds or balanced funds. Investors have the option of shifting from an aggressive to balanced or conservative fund. The life cover with ULIP is adjustable. You can add to your corpus amount by topping up; as a hedge against illness and possible surgeries.

Long term savings with ULIP

ULIPs come with 3 year lock-in period. In most ULIP schemes, the investor can increase or reduce premiums after 3 years. You can also choose to top-up the fund value. Typically you can benefit from ULIP if you stay invested for about 10 - 15 years. This way you can avail the power of compounding. Else you will be eroding into your investment as a sizeable chunk of your money will go towards charges. Check out for hidden costs such as fund management charges, premium allocation charges and mortality charges.

Before opting for a particular ULIP, compare the options carefully. Find out how many times you can make free switches between different investment plans. Read the fine print regarding additional lump sum investments that you would want to make to enhance your corpus. Find out which ULIP gives minimum guarantee against market uncertainties.