Unit Linked Insurance policy (ULIPs) is a combination of insurance cover plus investment. A part of premium is paid to the insurance cover option and remaining part is invested in various equity and debt schemes. Customers have the option of choosing the type of fund either debt or equity or a mix of both based on their investment need. Various types of funds available in ULIP Plans are explained below
Equity Funds: Initially invested in company stocks. Risk coverage is Medium to High.
Income, Fixed Interest and Bond Funds: This type of funds are Invested in government securities, corporate bonds and other fixed income instruments. Risk coverage is Medium.
Cash Funds: Cash Funds also known as Money Market Funds. This type of funds is invested in bank deposits, cash and money market instruments. Risk coverage is low.
Balanced Funds: This type of funds is combining equity investment with fixed interest instruments. Risk coverage is medium.
Benefits of ULIP: A unit linked insurance policy (ULIPs) acts like a savings vehicle but also has the benefits of getting insurance cover along with the investment.
Example of ULIP: Suppose, a person buys a ULIP which is combination of risk cover plus investment. After paying premiums, the insurance cover is given to the person by deducting some charges by insurer for what he had paid. Major portion of amount is invested into fund chosen by person and that is converted into units. While cancellation of units Fund management charges, mortality cover and similar expenses are deducted.