When there is an emergency-like situation or any sudden demise of a bread earner in the family, good insurance will always come to rescue 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 the insurance and investment there is always a Unit-Linked Insurance Plan (ULIP). Here in this article, we discuss the key aspects which are related to ULIP and how to use this as an investment for financial security.
What is a Unit-Linked Insurance Plan (ULIP)?
Unit-Linked Insurance Plan is a combination of investment and also insurance. In this type of insurance plan, you should pay a premium regularly on a monthly basis or on an annual basis.
A portion of the investment amount is utilized for the life insurance cover while the other part of the insurance will go to the investment. The premium amount is invested in equities or debts or in hybrid funds. These combinations of investments will result in getting a good way of return.
A very important factor to consider is that Unit-Linked Insurance plan investment is subject to market risk and the insurance 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 the ULIP. The benefits of investment are as follows.
- Goal oriented savings
- Options to choose invested premium into debt, equity, and balanced funds.
- Customized portfolio creation and add-on services
- Transparency
- Flexible
- Offers Liquidity
ULIP insurance plans are different and transparent. These are easily accessed and the policyholder will get updates related to the investment and they can check the performance of portfolios as and when they want.
Since these are goal-oriented savings ULIP investments are long-term investments for accomplishing the goals of child education, retirement, and so on. ULIP will allow the user to find out the tenure, invested amount, and performance of the portfolio. It is a kind of disciplined investment for getting the maximum returns at a minimum risk.
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ULIPs in the UAE
The ULIP insurance plans are created and designed for increasing 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 classified strictly but generally based on practical application and these are listed as follows.
- Wealth Creation
- Child education
- Retirement plan
- Death
1. Wealth Creation
ULIP investment plan is designed to create wealth for a long time. It is recommended for adults with income earnings.
2. Child education
The Child Insurance ULIP plan is meant for taking care of financial requirements.
3. Retirement plan
With this ULIP plan, the policyholder will make payment in service. The investment is paid back in a lump sum or in monthly installments to the policyholder after their retirement.
4. Death
The policyholder will not get any benefits from the death plan but the dependents will get the benefit after the demise of the policyholder. The provisions of death benefits are different based on the plan that policyholders will select.
Some insurance companies will provide the beneficiaries with an amount that is equal to the fund value and the sum assured. These aspects are different from plan to plan so while buying the policy the policyholder should consult the insurance provider and ask for the complete details about the death benefits. The insurance policyholder should also discuss the same with the dependants/family member so that they can get to know about the policy though it is very difficult to discuss these matters.
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Charges Levied under ULIP
The insurance regulator has capped the charges and at present, there are four types of charges levied under ULIP and these are as follows.
Fund Management Charges
The fund management charges are the charges which are deducted towards managing the funds. It will be different from fund to fund according to the regulatory limits.
Morality Charges
If the policyholder is not living till the policy period these charges are paid to the insurer. The amount will depend upon the age factor, occupation, and location. Higher the age, the greater the mortality charge on the unit-linked insurance plan.
Premium allocation charges
The premium allocation charges are the initial expenses that are incurred by the insurance company at the time of issuing the policy. These are expenses related to underwriting, medical expenses, agent commission, and others.
Discontinuance Charges or Surrender Charges
Once you stop making premium payments, initially after the first five years the money in your account will be locked and there are charges levied for doing this. This is called a discontinuation policy fund charge.
Things to Consider Before Investing in a ULIP Plan
- Select the ULIP plan which provides you maximum returns.
- Make an evaluation of your insurance cover which gives maximum benefits
- Compare features and benefits of ULIP plans
- Make evaluation of performance history of investments which are from different providers
- Select ULIP plan which offers you good returns and flexible investment options
- Investors with high risk can select equity plans and others can select debt or hybrid funds
- Check the claim settlement ratio of service providers and make your investment into the unit linked insurance plan.
Take Away
ULIP investments are best for the policyholders who are having long-term investment goals and also want insurance cover. At any age this policy can be started provided they do not cross the age limits. To fulfill financial goals and responsibilities a good investment plan can provide good results. A person with a regular income and those who are looking to secure a family future must have ULIP investment.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
