In this policy, the investment risk in the investment portfolio is borne by the policyholder.
The key purpose of an insurance policy is to provide financial coverage for your loved ones against any unforeseen events. A wide variety of plans are available to choose from, basis your life-stage and needs such as pure protection, savings, child education, retirement (wealth creation), etc. One product that acts both as an insurance tool, as well as an investment tool, is the Unit Linked Insurance Plan (ULIP). Let us learn how it works:
When you invest in a ULIP, a portion of your premium is allocated for the insurance cover while the rest is invested in equity/debt funds basis your choice of funds. You can choose from various plan variants which vary in fund allocation to equity and debt.
How ULIPs Work
The insurer pools money from all the policyholders and invests the same in the funds chosen by them. Once the money is invested, the total corpus is divided into 'units' with a certain face value. Each investor is then allocated ‘Units’ in proportion to the invested amount. The value of each unit, at any point in time, is called the Net Asset Value (NAV). As the value of the underlying assets increase or decrease, its effect is reflected in the NAV.
In case you partially withdraw from the corpus (basis terms and conditions of the policy), the corresponding amount of units is sold. Similarly, some policy charges are also deducted in the form of units.
Useful Features of a ULIP
1. Investment Allocation:
Some ULIPs like Max Life Shiksha Plus Super, Max Life Platinum Wealth Plan, and others, allow you to manage your existing corpus as well as future investments through options to systematically transfer funds from one fund type to another (based on your varying risk appetite). They also allow you to actively manage your funds to make the most of your invested amount.
ULIPs allow you to switch your existing investment from one fund type to another. You can use this feature to move all your funds as per your market outlook and life stage.