A unit linked insurance plan is a type of insurance plan that not only protects the person who invests in it from risk but also provides investment flexibility. It manages this by placing all of the single funds, known as units, into a larger fund. The value of the underlying assets in the fund fluctuates according to their market value. When all of these assets are added up, the value of the unit linked insurance plan is measured in terms of the net asset value.
Most people wish to be covered financially should some sort of misfortune befall them while at the same time building up enough funds and assets so that they can live comfortably as they get older. A unit linked insurance plan is designed with the intent of providing such a combination of stability and flexibility. It offers the risk protection associated with typical insurance plans, but it also can act as a viable component of an investment portfolio.
The way that a unit linked insurance plan, or ULIP, works is that the person who joins one pays a premium for risk coverage just like what would be required of any other insurance policy. Excess funds are then placed into the unit plan, which represents the investment portion of the plan. From that point, the value of the plan is dependent on the way that the fund performs on the market. This means that there is some risk to the individual investor just as in any investment.
Flexibility is another calling card of a unit linked insurance plan, as it offers the investor a chance to diversify across many different opportunities. An investor in a ULIP may shift funds among such possibilities as equity funds, debt funds, and balance funds, usually without any added cost other than the initial premium and the money due to the fund manager. The value of each of these assets makes up the overall value of the plan.
Investors also have the choice of dropping down one huge payment at the start of the plan or paying the premium in installments of various lengths. There is also the possibility that, depending on the capital they have, certain investors may wish to pay more of a premium at a specific time. Doing this will increase the value of the plan as a whole. In the same way, investors also have the option to contribute less to the plan at certain times, which would obviously decrease the net asset value of their plan.
